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- Thursday, July 17, 2008

Tech:stocker - If Centro Were King, We Would Buy Palm

Sticking with San Jose Mercury News' Silicon Valley 150 list this week, we at tech:stocker decided to check-in on an old favorite that we've avoided for the last few years, Palm (PALM:NASDAQ).

When the Treo was first introduced, we at tech:stocker were among the many who bought the 600 and thought we were truly at the forefront of the technology revolution. It didn't matter that it took upwards of 5-6 minutes just to download a simple quote (after all, we are not daytraders so our checking prices during trading hours is merely out of professional curiosity or to kill time while waiting for a flight).

As the agonizingly long two year-commitment with Sprint (S:NYSE) finally ended and freed us from their inferior coverage, we made said goodbye to the Treo and the numerous wands that we lost and switched to AT&T (T:NYSE) and a Samsung Blackjack before settling on an iPhone.

Of the many people we knew that owned a Treo, none of them now own a Palm product and many own an iPhone. So what happened?

Many analysts are quick to blame Palm for the many delays the Centro faced going to market while Palm seemed to blame the FCC for their problems. Passing the buck is never helps investor confidence so Palm was stuck selling its Treos in 2007 instead of satisfying the supposed demand for a smaller, trendier smartphone. Sales suffered, profits dropped, and the price of the stock dropped. On Feb. 19th of this year the Centro finally became available and at the end of March they announced they had sold over 1 million phones.

Unfortunately for Palm, selling 1 million $99 phones is not exactly big bucks. In addition, Apple (AAPL:NASDAQ) sold over 1 million of its new iPhone in just one weekend. Combined with the fact that the entry price for the iPhone is $199, you have to believe that Palm missed the mark with the Centro in so many ways.

But to be fair to Palm, I did spot a Centro recently at an Oakland As game. A young lady who couldn't stand watching the As get beat by the Anaheim Angels was busy texting her friends with the wand in hand. At best, it looked awkward. In addition to her, my next door neighbor also bought a Treo recently. Mike is a great guy who longs for an REO Speedwagon reunion tour this summer and weekly writes McDonalds (MCD:NYSE) in hopes of convincing them to offer a meal larger than "Super Size".

We've seen analysts call for a price of 12-month price of $5.50 but with the company facing negative earnings estimates for the rest of FY 2008, we see $5 as a much more realistic price. It's too bad that Palm has lost its first mover advantage in the smartphone sector as someone needs to push Apple to make better products and keep its prices down. Until Palm can deliver a smartphone that replaces the wallet (contact tech:stocker if you need us to work with your product management team on this one), we believe they are going to keep losing money and market share for the foreseeable future.