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| Thursday, September 07, 2006 |
Palm Shares Plunge on Revenue Shortfall, Analysts Worry NewTreos Might Not Solve Slowdown
Shares of Palm Inc. plunged Thursday morning as analysts en masse reacted to Wednesday's news that slow Treo smartphone sales will cause the company to miss its first-quarter sales outlook by about $30 million.
Palm's stock plummeted $1.35, or 8.7 percent, to $14.18 in morning trading on the Nasdaq, having traded as low as $12.25 and as high as $24.91 in the past year.
"After providing first-quarter guidance $30 million below expectations June 29, Palm ... now expects $30 million shortfall to new guidance," wrote RBC Capital Markets analyst Mike Abramsky in a note to investors.
The analyst downgraded Palm to "Sector Perform" from "Outperform" and dropped the price target to $16 from $23.
Palm said after the bell Wednesday it expects revenue of $354 million to $356 million for the quarter ended Sept. 1, down from the outlook it gave June 29 for revenue of $380 million to $385 million. However, the company said its outlook for adjusted earnings of 18 cents to 19 cents per share stands.
"The extent of impact from the $199 Motorola Q (vs. Treo 700 at $399) on Treo retail sellthrough appears to be greater than we expected," wrote Abramsky.
The analyst added that the Treo's features and design may not justify its premium price, but that the upcoming launch of a somewhat less-expensive Treo might not fix the first-quarter issues. "We do not believe market demand is the issue, which we think will continue to grow as strongly as the wireless data market expands, but is Palm-specific issues."
Morgan Keegan's Tavis C. McCourt wrote in a note to investors that a falling stock price may "provide an interesting opportunity in the stock depending on where the shares settle out." The analyst continues "to believe Palm will ultimately be bought by either a traditional computer manufacturer looking to get into the smartphone business ... or a mobile phone manufacturer looking to bring a better cost structure to a great product and a great brand."
McCourt maintained a "Market Perform" rating on Palm. Meanwhile, Lehman Brothers dropped their price target for the stock to $14 from $18.
Merrill Lynch analyst Vivek Arya took a more positive stance, maintaining a "Buy" rating and a $19 target for the stock. |
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