netrashetty
Netra Shetty
Palm, Inc. was a smartphone manufacturer headquartered in Sunnyvale, California that was responsible for products such as the Pre and Pixi as well as the Treo and Centro smartphones. Previous product lines include the Palm Pilot, Palm III, Palm V, Palm VII, Zire and Tungsten. While their older devices run Palm OS Garnet, four editions of the Treo run Windows Mobile. In early 2009 Palm announced a new operating system, webOS, replacing the original Palm OS Garnet in their newest devices.[3]
On April 28, 2010, HP announced that it had agreed to acquire Palm for $1.2 billion.[4] The deal was completed on July 1, 2010.[5] The Palm global business unit will be responsible for webOS software development and webOS based hardware products, from a robust smartphone roadmap to future slate PCs and netbooks.
Palm Inc. (NASDAQ: PALM) sells smartphones (the Pre and Pixi) based on its Palm WebOS. In the U.S., Palm sells its phones through Sprint Nextel (S), Verizon Wireless, and AT&T (T). These companies compete for new contracts by giving customers device subsidies and changing the prices of data plans.[1] While Palm benefits from the widespread adoption of smartphones, the company's upside is limited by the need to work with the major telecommunication providers to determine prices.
Furthermore, stiff competition and innovative products from Apple (AAPL), Research in Motion (RIMM), HTC, Nokia, Samsung, Motorola, LG and others threaten Palm's market share of the smartphone market. Moreover, operating systems such as the iPhone OS by Apple (AAPL), Blackberry OS by Research in Motion (RIMM), Google's Android, and Nokia's Symbian OS compete with Palm for market share in the mobile operating system market.
Company Overview
Palm products are sold through select Internet, retail, reseller and wireless operator channels, and at the Palm online store. In the United States, Palm's largest customers are Sprint Nextel Corporation, Verizon Wireless, and AT&T, representing 43%, 17%, and 8% of the company's total revenue in 2008, respectively.
Competitors' substitutes and alternative products include Apple (AAPL)'s iPhone and various Windows Mobile and Android platform devices by HTC, Samsung, and LG. Other devices include Research in Motion (RIMM)'s Blackberry, and a number of Symbian powered phones by Nokia (NOK).
Contents
1 Company Overview
1.1 Business and Financial Metrics
2 Trends/Forces
2.1 Neutral view
2.2 Carrier relationships critical to Palm device sales
2.3 Increasing device sophistication and convergence of cameras, phones, and PDAs
2.4 Palm is losing money due to stiff competitive rivalry and telecom negotiating power
3 Competition
3.1 Major Smart Phone Manufacturers
3.2 Mobile Device Manufacturers
3.3 Market Share
4 References
Palm webOS
Palm webOS is a standards-based OS designed exclusively for mobile use. Palm webOS is designed to run on a variety of hardware form factors. Palm webOS supports a number of core capabilities such as contacts, calendar, tasks, memos, phone, browser, e-mail, messaging, camera, photo viewer and audio/video player. In conjunction with Palm webOS, services are offered which are delivered over-the-air including software updates, back-up and restore of certain data, remote erase of a device and access to the applications catalog.
Palm Pre
The Palm Pre is the first Palm smartphone to run on Palm webOS. The Palm Pre integrates Palm webOS software and Palm’s internally-designed hardware to optimize device performance and the user experience. Some of Palm Pre’s main features include high-speed connectivity, Wi-Fi 802.11 b/g, a slide-out QWERTY keyboard, a 3.1-inch touch screen, a “gesture area” where users make simple, intuitive gestures for navigation, a high-performance web browser, a 3-megapixel camera with LED flash, 8GB (approximately 7GB available to user) of internal storage, a MicroUSB connector with USB 2.0 Hi-Speed, proximity and light sensors and an accelerometer which automatically orients web pages and photos to the user’s perspective. The Palm Pre was made available to consumers through Sprint in the United States in June 2009 and Bell Mobility in Canada and Telefonica in Europe at the end of 2009.
Treo
Palm targets certain business customers with its Windows Mobile-based Treo Pro smartphone, introduced in August 2008. The Treo Pro provides an integrated Palm and Windows Mobile 6.1 solution for businesses that have standardized their operations on Microsoft software. The Treo Pro offers Microsoft Direct Push Technology, Microsoft System Center Mobile Device Manager, client support and access to applications available for Windows Mobile.
Manufacturing
A significant portion of Palm Pre, Centro, Treo and other assembled products are manufactured by outsourced partners, primarily in Taiwan and China.
Business and Financial Metrics
Third Quarter Fiscal 2010 Results[2]
Total revenue for the quarter ended February 26, 2010, totaled $349.9 million. Gross profit and gross margin on a GAAP basis were $47.0 million and 13.4 percent, respectively. The company shipped a total of 960,000 smartphone units during the quarter, representing a 23 percent increase from the second quarter of fiscal year 2010 and an almost 300 percent increase versus the third quarter of fiscal year 2009. Net loss attributable to common stockholders for the third quarter of fiscal year 2010 was $(22.0) million, or $(0.13) per diluted common share. This compares to a net loss attributable to common stockholders for the second quarter of fiscal year 2010 of $(13.7) million, or $(0.09) per diluted share, and to a net loss attributable to common stockholders for the third quarter of fiscal year 2009 of $(98.0) million, or $(0.89) per diluted common share.
Trends/Forces
Neutral view
The business model: The vertical integrated, closed ecosystem model is not for small and weak players like Palm. Even NOK and RIMM would find it hard to thrive or even survive. Palm's model is more open than Apple, yet less so than Android.
So far, webOS applications have been small in number but growing steadily.
Through various financial maneuvers and public stock offerings, Palm has secured substantial amounts of capital with which to execute their goals. How far these funds go to sustain the company in the long run remains to be seen as clearly Palm is currently the smallest player at the table.
Palm Pixi could go great lengths to introduce new customers into the webOS ecosystem, mainly because of its low entry price by some retailers. It is inferior in many respects to the Pre, though Palm is expecting to have the same luck with entry-level smartphone consumers as they did with their popular Centro. The Palm Pixi can already be had for under $50 at multiple retailers, which is a better price point than that offered at launch by Sprint, at $99.
Verizon is currently pushing its hero device, the Motorola Droid, though the Palm Pre will release on Verizon in early 2010. It remains to be seen if they will employ the same kind of marketing muscle they applied for the Droid.
Still, there is the bottom line: Palm has $750 debt due in 2014, and if sales fail to generate cash flow, it will face death by then. Whether they will achieve sustained growth to meet that and thrive will play out in the ensuing months.
Carrier relationships critical to Palm device sales
Telecoms such as AT&T (T), Sprint Nextel (S), and Verizon Communications (VZ) are often the actual vendors for Palm's goods. These companies charge long term subscription fees on the service, and therefore subsidize the phones in exchange for multi-year contracts. This means Palm's telecom partners decide which technologies and smart phones to sell, putting a middleman between the company and consumers. In addition, each additional contract agreement with a telecom promises to help revenues, as more subscribers will pick up phones. For example, on June 12, 2008 Palm announced that it had landed a contract for the Centro on Verizon Communications (VZ) network, and the company's stock jumped 13%.[3]
Increasing device sophistication and convergence of cameras, phones, and PDAs
Not much more than a decade ago in the 1990's, expectations for digital devices were very different, with little market penetration for digital cameras, cell phones, or PDAs. However, each of these devices has become an important consumer electronic in its own right. The PDA and cell phone converged into the Smart phone, which is slowly taking share from non-smart phones. More and more phones also have an integrated camera. Finally, more devices also have internet capability, delivering rich media such as video and music to the end user. Estimates of the smart phone market suggest it is growing at approximately 30% a year, compared with overall cell phone market, which is growing in the single digit percentages by revenues.[4] Much of this is caused by the lowering price points of the smart phones, which make them more accessible to consumers, so consumers buy them to replace their aging non-smart phones. For example, for Palm's new $99 Centro product, 70% of its new buyers upgraded from a non-Smart phone.[5]
Palm is losing money due to stiff competitive rivalry and telecom negotiating power
Palm's market share by units is approximately 13.4%[6], and the dated PalmOS has trouble competing with Apple (AAPL) iPhone software and the BlackBerry's interface. Pricing, margins, and share of products in this industry are in flux due to innovation. In this case, both Research in Motion (RIMM) and Apple (AAPL) lead Palm in market share for smartphones, with 44.5% and 19.2% unit market share, respectively.[7] In addition, the value chain dictates that all phones are passed through to the consumer through the wireless telecom companies, who also have negotiating power to dictate prices over the companies like Palm.[8] This hurts Palm, which has been operating at a loss since FY 2007 and could use the pricing flexibility. In a position without a high-priced and innovative product, Palm's negative margins cannot be improved through collaboration with its telecom partners.
Competition
Major Smart Phone Manufacturers
Apple (AAPL) - Apple is the company behind the IPhone, a successor to the iPod which integrates both internet and phone capabilities.
Research in Motion (RIMM) - RIMM is behind the Blackberry series of devices, which are highly favored in the coprorate environment for their unique ability to deliver PUSH email around the world.
Nokia (NOK)
LG
Samsung
Many of the phones offered by Nokia (NOK), LG, and Samsung would not be considered traditional "smart phones" in that they do not run an advanced OS like BlackBerry, AAPL, or Palm. However, their phones are competitive and have many "smart features", and some of their next gen devices also incorporate some sort of "smart" advanced internet capability.
Mobile Device Manufacturers
Lenovo Group (LNVGY)
Hewlett-Packard Company (HPQ)
Dell (DELL)
Many of the major computer manufacturers also entered the P.D.A. business given that their competencies in making computers carried over to the PDA segment. As such, Dell's Axim line, HP's IPAQ line, and Lenovo's PDA phones all directly compete with Palm's Smart phone, and Palm's older line of non-phone PDAs.
Market Share
There are two critical markets when it comes to Palm - first the Smart Phone market at large, which includes general users who are converting from normal phones, and the Corporate market, which has long been competitor Research in Motion (RIMM) main market. According to Palm, 70% of its new Centro buyers upgraded from an non-Smart phone.[9]
U.S. Smartphone Share[10] % Share (IDC)
RIM 44.5
AAPL 19.2
PALM 13.4
Samsung 8.6
Motorola 2.6
HTC 4.1
Other 7.6
According to the data service IDC, which tabulates sales by units, the domestic Smart phone market is 44.5% in BlackBerry hands, with competition from the IPhone. Motorola, and HTC are all second-tier players in this field. Palm has share at 13.4%, largely due to many Centro sales during FY 2008.[11]
In the corporate arena, due to access requirements and security demands, as well as a general corporate aversion to Apple (AAPL) due to closed standards, BlackBerry and Palm are the primary competitors. Even as such, BlackBerry leads Palm 76% to 18%, according to ChangeWave, which conducted a survey among corporate IT groups. The number tabulates % of adoption among 2,000 different enterprises.[1
On April 28, 2010, HP announced that it had agreed to acquire Palm for $1.2 billion.[4] The deal was completed on July 1, 2010.[5] The Palm global business unit will be responsible for webOS software development and webOS based hardware products, from a robust smartphone roadmap to future slate PCs and netbooks.
Palm Inc. (NASDAQ: PALM) sells smartphones (the Pre and Pixi) based on its Palm WebOS. In the U.S., Palm sells its phones through Sprint Nextel (S), Verizon Wireless, and AT&T (T). These companies compete for new contracts by giving customers device subsidies and changing the prices of data plans.[1] While Palm benefits from the widespread adoption of smartphones, the company's upside is limited by the need to work with the major telecommunication providers to determine prices.
Furthermore, stiff competition and innovative products from Apple (AAPL), Research in Motion (RIMM), HTC, Nokia, Samsung, Motorola, LG and others threaten Palm's market share of the smartphone market. Moreover, operating systems such as the iPhone OS by Apple (AAPL), Blackberry OS by Research in Motion (RIMM), Google's Android, and Nokia's Symbian OS compete with Palm for market share in the mobile operating system market.
Company Overview
Palm products are sold through select Internet, retail, reseller and wireless operator channels, and at the Palm online store. In the United States, Palm's largest customers are Sprint Nextel Corporation, Verizon Wireless, and AT&T, representing 43%, 17%, and 8% of the company's total revenue in 2008, respectively.
Competitors' substitutes and alternative products include Apple (AAPL)'s iPhone and various Windows Mobile and Android platform devices by HTC, Samsung, and LG. Other devices include Research in Motion (RIMM)'s Blackberry, and a number of Symbian powered phones by Nokia (NOK).
Contents
1 Company Overview
1.1 Business and Financial Metrics
2 Trends/Forces
2.1 Neutral view
2.2 Carrier relationships critical to Palm device sales
2.3 Increasing device sophistication and convergence of cameras, phones, and PDAs
2.4 Palm is losing money due to stiff competitive rivalry and telecom negotiating power
3 Competition
3.1 Major Smart Phone Manufacturers
3.2 Mobile Device Manufacturers
3.3 Market Share
4 References
Palm webOS
Palm webOS is a standards-based OS designed exclusively for mobile use. Palm webOS is designed to run on a variety of hardware form factors. Palm webOS supports a number of core capabilities such as contacts, calendar, tasks, memos, phone, browser, e-mail, messaging, camera, photo viewer and audio/video player. In conjunction with Palm webOS, services are offered which are delivered over-the-air including software updates, back-up and restore of certain data, remote erase of a device and access to the applications catalog.
Palm Pre
The Palm Pre is the first Palm smartphone to run on Palm webOS. The Palm Pre integrates Palm webOS software and Palm’s internally-designed hardware to optimize device performance and the user experience. Some of Palm Pre’s main features include high-speed connectivity, Wi-Fi 802.11 b/g, a slide-out QWERTY keyboard, a 3.1-inch touch screen, a “gesture area” where users make simple, intuitive gestures for navigation, a high-performance web browser, a 3-megapixel camera with LED flash, 8GB (approximately 7GB available to user) of internal storage, a MicroUSB connector with USB 2.0 Hi-Speed, proximity and light sensors and an accelerometer which automatically orients web pages and photos to the user’s perspective. The Palm Pre was made available to consumers through Sprint in the United States in June 2009 and Bell Mobility in Canada and Telefonica in Europe at the end of 2009.
Treo
Palm targets certain business customers with its Windows Mobile-based Treo Pro smartphone, introduced in August 2008. The Treo Pro provides an integrated Palm and Windows Mobile 6.1 solution for businesses that have standardized their operations on Microsoft software. The Treo Pro offers Microsoft Direct Push Technology, Microsoft System Center Mobile Device Manager, client support and access to applications available for Windows Mobile.
Manufacturing
A significant portion of Palm Pre, Centro, Treo and other assembled products are manufactured by outsourced partners, primarily in Taiwan and China.
Business and Financial Metrics
Third Quarter Fiscal 2010 Results[2]
Total revenue for the quarter ended February 26, 2010, totaled $349.9 million. Gross profit and gross margin on a GAAP basis were $47.0 million and 13.4 percent, respectively. The company shipped a total of 960,000 smartphone units during the quarter, representing a 23 percent increase from the second quarter of fiscal year 2010 and an almost 300 percent increase versus the third quarter of fiscal year 2009. Net loss attributable to common stockholders for the third quarter of fiscal year 2010 was $(22.0) million, or $(0.13) per diluted common share. This compares to a net loss attributable to common stockholders for the second quarter of fiscal year 2010 of $(13.7) million, or $(0.09) per diluted share, and to a net loss attributable to common stockholders for the third quarter of fiscal year 2009 of $(98.0) million, or $(0.89) per diluted common share.
Trends/Forces
Neutral view
The business model: The vertical integrated, closed ecosystem model is not for small and weak players like Palm. Even NOK and RIMM would find it hard to thrive or even survive. Palm's model is more open than Apple, yet less so than Android.
So far, webOS applications have been small in number but growing steadily.
Through various financial maneuvers and public stock offerings, Palm has secured substantial amounts of capital with which to execute their goals. How far these funds go to sustain the company in the long run remains to be seen as clearly Palm is currently the smallest player at the table.
Palm Pixi could go great lengths to introduce new customers into the webOS ecosystem, mainly because of its low entry price by some retailers. It is inferior in many respects to the Pre, though Palm is expecting to have the same luck with entry-level smartphone consumers as they did with their popular Centro. The Palm Pixi can already be had for under $50 at multiple retailers, which is a better price point than that offered at launch by Sprint, at $99.
Verizon is currently pushing its hero device, the Motorola Droid, though the Palm Pre will release on Verizon in early 2010. It remains to be seen if they will employ the same kind of marketing muscle they applied for the Droid.
Still, there is the bottom line: Palm has $750 debt due in 2014, and if sales fail to generate cash flow, it will face death by then. Whether they will achieve sustained growth to meet that and thrive will play out in the ensuing months.
Carrier relationships critical to Palm device sales
Telecoms such as AT&T (T), Sprint Nextel (S), and Verizon Communications (VZ) are often the actual vendors for Palm's goods. These companies charge long term subscription fees on the service, and therefore subsidize the phones in exchange for multi-year contracts. This means Palm's telecom partners decide which technologies and smart phones to sell, putting a middleman between the company and consumers. In addition, each additional contract agreement with a telecom promises to help revenues, as more subscribers will pick up phones. For example, on June 12, 2008 Palm announced that it had landed a contract for the Centro on Verizon Communications (VZ) network, and the company's stock jumped 13%.[3]
Increasing device sophistication and convergence of cameras, phones, and PDAs
Not much more than a decade ago in the 1990's, expectations for digital devices were very different, with little market penetration for digital cameras, cell phones, or PDAs. However, each of these devices has become an important consumer electronic in its own right. The PDA and cell phone converged into the Smart phone, which is slowly taking share from non-smart phones. More and more phones also have an integrated camera. Finally, more devices also have internet capability, delivering rich media such as video and music to the end user. Estimates of the smart phone market suggest it is growing at approximately 30% a year, compared with overall cell phone market, which is growing in the single digit percentages by revenues.[4] Much of this is caused by the lowering price points of the smart phones, which make them more accessible to consumers, so consumers buy them to replace their aging non-smart phones. For example, for Palm's new $99 Centro product, 70% of its new buyers upgraded from a non-Smart phone.[5]
Palm is losing money due to stiff competitive rivalry and telecom negotiating power
Palm's market share by units is approximately 13.4%[6], and the dated PalmOS has trouble competing with Apple (AAPL) iPhone software and the BlackBerry's interface. Pricing, margins, and share of products in this industry are in flux due to innovation. In this case, both Research in Motion (RIMM) and Apple (AAPL) lead Palm in market share for smartphones, with 44.5% and 19.2% unit market share, respectively.[7] In addition, the value chain dictates that all phones are passed through to the consumer through the wireless telecom companies, who also have negotiating power to dictate prices over the companies like Palm.[8] This hurts Palm, which has been operating at a loss since FY 2007 and could use the pricing flexibility. In a position without a high-priced and innovative product, Palm's negative margins cannot be improved through collaboration with its telecom partners.
Competition
Major Smart Phone Manufacturers
Apple (AAPL) - Apple is the company behind the IPhone, a successor to the iPod which integrates both internet and phone capabilities.
Research in Motion (RIMM) - RIMM is behind the Blackberry series of devices, which are highly favored in the coprorate environment for their unique ability to deliver PUSH email around the world.
Nokia (NOK)
LG
Samsung
Many of the phones offered by Nokia (NOK), LG, and Samsung would not be considered traditional "smart phones" in that they do not run an advanced OS like BlackBerry, AAPL, or Palm. However, their phones are competitive and have many "smart features", and some of their next gen devices also incorporate some sort of "smart" advanced internet capability.
Mobile Device Manufacturers
Lenovo Group (LNVGY)
Hewlett-Packard Company (HPQ)
Dell (DELL)
Many of the major computer manufacturers also entered the P.D.A. business given that their competencies in making computers carried over to the PDA segment. As such, Dell's Axim line, HP's IPAQ line, and Lenovo's PDA phones all directly compete with Palm's Smart phone, and Palm's older line of non-phone PDAs.
Market Share
There are two critical markets when it comes to Palm - first the Smart Phone market at large, which includes general users who are converting from normal phones, and the Corporate market, which has long been competitor Research in Motion (RIMM) main market. According to Palm, 70% of its new Centro buyers upgraded from an non-Smart phone.[9]
U.S. Smartphone Share[10] % Share (IDC)
RIM 44.5
AAPL 19.2
PALM 13.4
Samsung 8.6
Motorola 2.6
HTC 4.1
Other 7.6
According to the data service IDC, which tabulates sales by units, the domestic Smart phone market is 44.5% in BlackBerry hands, with competition from the IPhone. Motorola, and HTC are all second-tier players in this field. Palm has share at 13.4%, largely due to many Centro sales during FY 2008.[11]
In the corporate arena, due to access requirements and security demands, as well as a general corporate aversion to Apple (AAPL) due to closed standards, BlackBerry and Palm are the primary competitors. Even as such, BlackBerry leads Palm 76% to 18%, according to ChangeWave, which conducted a survey among corporate IT groups. The number tabulates % of adoption among 2,000 different enterprises.[1
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