Palm: Report Sees Pre Defects Hitting Earnings
Despite being enamored with Palm's (PALM) Pre smartphone, analyst Kevin Dede with boutique investment banker and brokerage Jesup & Lamont this morning initiated coverage of Palm shares with a “Sell” rating. Dede thinks the shares are worth $12.50.
Context & Ripple Effects
Palm enters this week having already survived two near-death chapters: shares sank in November 2008 on capital worries, and its fortunes were re-staked on the February 2009 Sprint exclusivity deal before the Pre's well-received June 6 launch. By early July the narrative had flipped twice more — analysts called the launch a success and flagged inventory replenishment as the next test, even as coverage of the device itself split between praise for webOS and complaints about hardware quality, including a Strategy Analytics finding that owners miss a physical keyboard.
Today's move is the first formal bear position in that window: Kevin Dede of boutique firm Jesup & Lamont initiates coverage of PALM at Sell with a $12.50 target, arguing reported Pre defects — a claim he asserts but which remains an analyst assertion, not a company confirmation — will show up in earnings. That puts a price anchor under a stock whose bulls have been running the 'iPhone killer' framing.
First-order effects
- PALM shares now carry a published Sell rating and $12.50 target from Jesup & Lamont, giving skeptical investors their first institutional cover since the June launch enthusiasm.
- Sprint, whose Pre exclusivity was the basis of its own February rally, is directly exposed: defect-driven returns or weak replenishment orders hit the carrier's flagship bet, not just Palm's line item.
Second-order effects
- Hardware rework competes with Palm's just-completed software push — the Mojo SDK went generally available on July 16 — so engineering and cash burn shift toward fixing devices at exactly the moment the developer ecosystem needs momentum.
- If defect claims harden into confirmed return rates, Sprint gains leverage in any renegotiation of exclusivity terms or marketing spend, squeezing Palm's already-thin margins.
Third-order effects
- The pattern points toward handset valuations splitting by hardware reliability rather than OS buzz: Palm's webOS goodwill cannot offset physical-quality doubts if carriers and buyers price returns into orders.
- For thinly capitalized phone makers, a single boutique-initiated Sell can set the reference price — echoing the 2008 episode when capital concerns alone sank the stock — making research coverage itself a structural risk factor.
The trend: Smartphone launches are entering an era where hardware execution quality, not software-platform hype, determines whether carrier-backed challengers can sustain their post-launch stock premium.