Stream of consciousness from the Palm call….full transcript is available here.
[This GAAP/non-GAAP thing is a huge useless pain for everyone.Â Takes tons of time an does nothing but obfuscate.]
Smartphone business not too bad.Â Handhelds obviously down the drain but now pretty small.
Gross margins down 6pts sequentially! No expansion likely in Q3.
Operating expenses are coming down nicely, should hit low-mid $90M range soon.
Non-GAAP loss of $80M and Adjusted EBITDA loss of $55M.Â (What large NOL carryforwards you have grandma!)
Cash at $224M, inventory, and A/R all okay.
Sounds like this is close to the bottom for the company with the February quarter offering the most likley bottom IF the new product strategy works starting in fiscal Q4.
It’s tough out there. Maturing product line, consumer spending tough, spending on new products adding to expenses but not yet ramping.Â Translates into a "few rough months ahead."
New platform is nearing completion and first phone will launch in the first half of 09 as planned. Believes it will "stand out" in the marketplace.Â
For now Treo Pro continues to do okay, rolling out to new markets.Â Thinks their ability to control software and hardware will help them long-term in the market.Â Claims carriers are excited. [Could be an interesting alternative for carriers.]
Smartphones will continue to be gaining share as it is still early days here.Â [We agree.]
Sell in and sell through mostly balanced.Â Some inventory write-downs should put component WIP in line.Â Cash burn will be UP in the next quarter.
Some discussion of it being "too late" for a new phone platform.Â [We agree with management that is still early in the game.]
Treo Pro still plugs away in the current quarter and will roll out at a major US carrier this Q as well. All in front of the new product launch.
Company has auction rate securities but there is zero liquidity in the market right now.
[Conference call drinking game for the holidays? -Â "challenged environment" or "challenging environment."]
[Pretty good live coverage by the major Street analysts on the call. Clearly they are interested in catching a potential turn at Palm if one materializes.Â That’s a plus.]
They are going to be aggressive at marketing and promotion for the new products and be heavily discounting older products so margins will be under pressure.Â So Centros are going to be getting very cheap while the Treo Pro ramps and they work on the new platform.
Management states they will return to profitability in 2010 but mum on when exactly. Long term gross margin goal is between 33% and 36%.Â
Won’t get into what features might differentiate the new Palm offering.Â Is it graphics, keyboards, applications? No light shed on it.Â Maintains goal of having "the most compelling platform and product on the market."Â Hard to believe but they are aiming high anyway.
By Q4 of F09 their OpEx goal is mid-to-low 90M run rate.Â Company has $224M in cash and will manage all cash expenses very carefully in the Q.Â Claims they could raise additional cash if they needed to but that would only be to further drive initiatives rather than dig a deeper hole.
One last comment that Windows Mobile will continue to be their platform of choice for enteprise applications is interesting.Â Does it imply that all the new stuff coming will be consumer only and that they will need to continue to invest heavily in Windows Mobile?Â Will a Palm device work on both platforms or are we talking full separation here.
It’s going to be a volatile story the next few months.Â Clearly the new platform is a major turning point and with the number of moving parts the stock may not appeal to most.Â But with a market cap of $240M, $224M in cash and $400M in run rate revenues it’s an interesting stock.Â With listed options the stock can be used like a non-expiring call option to implement some strategies.
[Disclosure: We have a small position in PALM at the time of this writing.]