Taking A Look At Palm

Palm, the smartphone maker, might just be making a comeback.

Over the last year or two, they’ve had a management shakeout, 25% of the company was bought by U2′s Bono and some ex-Apple execs, and the company’s aging product line was refreshed (on the low end by the Centro, and on the high end by the 800w and the Treo Pro a.k.a. Treo 850).

From a product competitiveness standpoint, Palm is in the best shape it’s been in since the launch of the Treo 700 and Treo 750 in 2006. Their new high-end Treos have all the specs needed (WiFi, GPS, HSDPA) to compete with RIM (BlackBerry) and the other Windows Mobile devices (Motorola Q9, Samsung Blackjack II). The problem is that in 2008, the smartphone market is more competitive than it was in 2005 and 2006 — the last period of time that Palm performed well. Palm products now have the iPhone to compete with, as well as a line of BlackBerries that has more depth (different models to serve more niche audiences) and more enterprise adoption (many firms have been running BlackBerry Enterprise Server for years and are unlikely to switch).

Clearly, Palm’s new products are not a ‘perfect storm’ scenario. In fact, if anything, it’s a truly sad situation: Palm finally came out of the gate with some really strong products, and their competition has already decided their fate by having cooler products (Apple) and a competitive moat (RIM).

Let’s look at Palm stock for a moment. Palm (NASDAQ: PALM) is down 49% in the last 12 months. By comparison, its northern competitor, RIM (NASDAQ: RIMM) is up more than 65%. Palm stock has followed a pattern since November 2007 of occasionally rallying to $7, and then falling down closer to $5. As recently as a month ago, shares could be had for $5.33. Since then, we’ve seen a stronger-than-usual rally, with the stock surpassing $7. Shares today are selling for $7.76 (a gain of more than 40% in only 4 weeks!). Now, if you look at previous rallies from earlier this spring and summer, you’ll see that this one could very well subside just as the previous ones did. Palm’s income statement and cash flow numbers don’t look very promising, which lends to the idea that share purchases will be contained, and share sales would perhaps outpace purchases. But if you believe, as I do, that Palm’s new products will propel them to higher sales numbers during the 3rd and 4th quarters, perhaps buying Palm shares makes sense.

I’m still trying to figure out where I stand on Palm.

I guess it doesn’t matter if Palm makes a sensational comeback or not. They’ve at least proven that they can take on powerhouse RIM, which may be consolation enough.

Edit: Wired GadgetLab and a telecom analyst at Global Crown Capital seem to agree.