Palm betting on Palm Pre as savior

Posted on March 12, 2009. Filed under: Mobile World | Tags: , |

By Will Park, Intomobile.com

palm-pre-open

Maybe “savior” is a bit much. Palm (NSDQ: PALM) still has a loyal following of Treo-fans that will support Palm to the end. But there’s no denying that Palm needs a fantastically successful handset to rescue them from the depths of financial ruin. Palm’s financial standing has been rocky of late, what with their declining market share and bleeding bottom line.

Perhaps Palm does need a savior. Will the Palm Pre be enough?

Palm faces an uphill battle, following an announcement that has Palm expecting third quarter revenue of $85 million to $90 million, which falls well short of Wall Street’s $150 million projections. Palm has ironically cannibalized its own Treo and Centro sales with all the hype generated around the Palm Pre, giving many potential Treo buyers reason to wait out the remaining few months until the Palm Pre goes live on Sprint (NYSE: S). Unfortunately, recent financial hardships have left Palm in a less-than-optimal position to weather disappointing financial performance. Palm only has $215 – $220 million in cash reserves to keep its daily operations running, and expects operational costs to run between $95 million and $100 million in the third quarter. Clearly, Palm is running out of cash.

To help give the company a little more wiggle room, Palm today made 18.5 million shares of Palm stock publicly available. The move injects a cool $49 million into Palm’s corporate coffers, an effort aimed to give Palm the wherewithal to turn the Palm Pre into the rejuvenating success that Palm desperately needs it to be. Elevation Partners, Palm’s heaviest investor, also benefits from the deal with an option to buy the newly available stock.

With cash reserves dwindling, and selling off its own positions to help cover operational costs, it’s clear that Palm is banking on the Palm Pre to rescue the company’s bottom line. The Palm Pre has been hyped since early this year, and the public has responded quite well. Packed with the high-tech hardware that appeals to geeks and powered by the sleek and intuitive touch-based WebOS, the Palm Pre may have what it takes to revive Palm. But, will that savior come in time?

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