Palm Reports Q1 FY 2010 Results
Print page E-mail page Download PDF — Palm, Inc. (NASDAQ: PALM) today reported that total revenues in the first quarter of fiscal year 2010, ended Aug. 28, 2009, were $68.0 million. Gross profit was ($2.8) million, and gross margin was (4.1) percent.
Context & Ripple Effects
This quarter closes out a rough stretch for Palm: shares sank on worries about capital in November 2008, then the June 2009 Pre launch was immediately shadowed by an analyst report flagging Pre defects hitting earnings, followed by pushback that the Pre hadn't flopped. Today's print is the first hard numbers since that fight.
The figures land badly on both sides of the ledger: $68.0 million in revenue with a negative 4.1% gross margin, 823,000 smartphones shipped, and management itself calling the outlook lumpy. Syndicated pickup also flags that Palm is abandoning Windows Mobile — completing the shift to the Linux-based OS it confirmed building back in 2007.
First-order effects
- Every smartphone Palm ships in this quarter is sold below cost, so the 823,000-unit launch volume deepens rather than relieves the cash burn that spooked investors in late 2008.
- Dropping Windows Mobile removes a licensing line from the cost structure but concentrates Palm's entire product future on its in-house Linux platform, raising the stakes on that OS's pace of development.
Second-order effects
- With margins negative and the outlook self-described as lumpy, Palm's access to outside capital becomes the binding constraint — the same worry that sank the stock in November 2008 returns as a live refinancing question.
- A single-OS Palm competes on software differentiation alone, forcing its carrier partners and rivals to price against a vendor that can subsidize hardware losses to buy installed base.
Third-order effects
- If negative-margin launch economics become the accepted way to enter the modern smartphone market, the industry splits into players with balance sheets deep enough to sustain them and players like Palm — which already sold a 25% stake and overhauled its board in 2007 — dependent on repeated external rescues.
- The abandonment of licensed third-party OSes points toward smartphone platforms consolidating around vertically integrated owners, shrinking the market for any vendor whose OS strategy depends on someone else's code.
The trend: Smartphone hardware launches are increasingly financed at negative gross margin, making platform ownership and balance-sheet depth — not unit shipments — the deciding factors in which vendors survive.