Palm gave a disappointing forecast yesterday, and today, shares are down 18%, with one analyst cutting his price target for the stock to $0. Clearly, the turnaround isn’t happening as fast as Palm had hoped, and now it may be toast.
One of the company’s biggest problems now, thanks to weak sellthrough last quarter by carrier partners, is a massive glut of mobile phones stuck in channel inventory.
Specifically, Morgan Stanley analyst Ehud Geldblum estimates in a note today that Palm’s total channel inventory is an “alarming” 1.15 million units. That is approximately half a year’s worth of retail sales, at last quarter’s rate.
Geldblum estimates that if Palm reduces its channel sell-in to 400,000 units this quarter (down from 960,000 last quarter, when it filled Verizon’s channel) and if sell-through to consumers increases to 575,000 (up from 408,000 last quarter), Palm will still be stuck with “a full quarter of excess inventory” after the May quarter.
The trouble is that while all those Pre and Pixi devices sit in their boxes waiting to get sold, Palm’s rivals keep developing and releasing new, better phones.
“Given the vast inventory overhang, we see little relief for PALM shares in the near-term, and expect the stock to trade closer to our $4 bear case scenario despite the potential longer term value of PALM’s webOS platform,” Geldblum writes.
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