Palm, which once broke new ground on the Smartphone market, is challenging some severe headwind these days. First of all, the new Smartphone models are experiencing disappointing sales. Secondly, the company is facing substantial competition in that same market nowadays. And thirdly, the company has built up a large amount of debts. In the opinion of many observers, two scenarios remain feasible. The first possible scenario is an inevitable bankruptcy, the second option is a complete takeover of the company.
Last week, because of extremely disappointing quarter results, two financial analysts decided to lower their target rates drastically immediately after the publication. Moreover, they didn't just lower their target rates, they were reduced to zero. In other words, they set the target rates to a point where they are worthless. After all, first mentioned wasn't the only underlying motivation. A short time before target rate drop the CEO, Jon Rubenstein, had announced that the company expected a turnover of 112 million Euros over the ongoing quarter while analysts had counted on a total turnover of nearly three times that volume. Last quarter, 408,000 out of 960,000 distrubuted devices were sold, which means that less than half of the retail distribution sales were achieved. This is just one of the consequences after the company lost more than 4% of its market share in comparison to a few years ago. Every loss of market share is damaging news, but if you see that your market share halves in just a few years time there are some serious business management issues.
If we take a look at what went wrong and when the company started experiencing a downturn, we see a large number of concerning reasons. Let's take a closer look on the broader history of this company. Palm was founded in 1992, at that moment Palm was really ahead of its time. It was actually seen as the promising architect of the mini-computer. Later on, when Palm's Treo - Dial functions were added to the original PDA - entered the market, it again led the way to new technologic dimensions. Things started changing drastically when Apple suddenly introduced the iPhone, which made Palm the first victim of a succesful market innovation. Engineers and software developers had some serious difficulties in trying to get a grip onthe swiftly shifting Smartphone market and it took a while for them to come up with a counteract in the shape of Palm OS.
Strengthened by the support of the investment company Elevation Partners under the lead of Bono, Palm managed to bring out a new collection of smartphones in 2009. After being given positive reactions, the brand needed to deal with important structural difficulties such as a lack of application sales and interest of the users. If we take a look at the direct competitor named Apple, we see that this is exactly what took the brand to the position it's in today. The iPhone really isn't that much without its wide range of apps. Another troublemaking thing was the hardware. If we include the fact that the delayed launch of one of its most promising products was disturbed by the launch of the iPhone 3GS into the total package, there are definitely some noticable causes at the starting point of the sales disappointments.
Last but not least, Palm has massive stocks which will have to be sold at lower prices. Automatically, this will have a downturn effect on the profitability and at the same time get in the way of the debt cutback. In addition to the current downbeat, the Smartphone market is only becoming more and more competitive.
In my humble opinion, the thing Palm isn't taking account is that they have an different audience compared to innovative, up-to-the-minute brands such as Apple and Blackberry. The latter have really changed their business models to focus on this new group of users and rethought their products to cope with these changes. The importance of a good team of engineers, driven by technology and innovation is more than ever of great value. If Palm really wants to play a significant role on the same market, they will need to be in on the beat and decide not to go with the flow to innovate. This reminds me of an old saying in the stock exchange backdrop. It goes like this: Bulls make money, bears make money, and lemmings get slaughtered. Lemmings are being seen as the group of traders that follow the mass. Because Palm followed the market evolution and didn't innovate by launching a new set of products, it didn't manage to be succesful. They only were succesful at the start, when they really where the architect of the Smartphone market.
In the market of Smartphones, the most important thing is to create a hype around your product. That's why brands like Apple try to spread their products as much as possible. That's because being mobile in every possible way is hot business in this day and age. I actually think that setting the target rate at zero is a good statement to state that the expectancies are harrowing. An example of how it should be done is what Google did when introducing Android, at least they knew the right way to do it. For most companies like Apple it's extremely difficult to stay on top of the league by staying innovative, not many companies have succeeded in that intention. That's why according to what I think, the market share of Apple will have declined drastically within a year or five. I am well aware of the market and I must say Google has the possibility to be a gigantic competitor and innovator in this segment within a few years of time.
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