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. 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.
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).
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.
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.
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.
A significant portion of Palm Pre, Centro, Treo and other assembled products are manufactured by outsourced partners, primarily in Taiwan and China.
Third Quarter Fiscal 2010 Results
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.
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%. dfhshshshsh
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. 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.
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