Palm in 2008: Hanging by a Thread or Back from the Dead?

Remember Palm and its Treo smartphones? Barely, you say? Yeah, me too. But thanks to an entry-level smartphone called the Centro and a couple of new high-end Treo devices, the Sunnyvale, Calif.-based handheld maker just might find its way back onto your radar in 2008.

It has been a while since I focused on Palm in this blog. In fact, it was last fall, when I suggested that the once industry-leading handset-producer may have lost its punch and could be headed for the great big gadget-recycling plant in the sky. But that was almost a year ago, and a lot can happen in a year’s time, including the beginnings of a comeback.

Back in October a reader by the name of Rob commented on that last Palm-related post and suggested a rather simple—yet insightful—strategy for the ailing smartphone company. From the comment:

“In answer to your question of what can save Palm? One thing: great product…If they can develop great product then they will get back on track.”

Well put, Rob. And it appears that Palm listened and is now on the first leg of the road to recovery.

The success of Palm’s first truly consumer-oriented device, the Palm Centro, has helped it regain some lost market share and rekindled interest in its upcoming smartphone lineup. (The Treo 680 was aimed at consumers, but it was basically a Treo 750, a business device, that ran on Palm’s own OS and came in a variety of colors.) Included in the new lineup are the recently announced Treo 800w and the rumored Treo 850, which unlike the entry level $99-or-less Centro, are aimed at power users who have a little more scratch to drop on a mobile device. The Treo 800w is currently available through Sprint–which was the first carrier to sell the Centro, as well—for $249.99 with a two-year service contract. And a GSM Treo 850 is also in the works, with leaked images of the purported device already bouncing around the Web.

Palm says it shipped its one millionth Centro in late March, and it expects to hit the two million mark before the end of the year. According to CEO Ed Colligan, Palm’s currently invested in growing its user base by attracting people who’re making the initial switch from feature-phones to smartphones with the inexpensive Centro. Colligan and company expect 2009 to be an important year in which they’ll see improved profit margins due to sales of the new Treos.

Palm is also seeing some short term U.S. market share gains, due largely to Centro sales. Though the company’s fourth quarter 2007 market share (7.9 percent) was significantly lower than its Q1 2007 share (23 percent), Palm has shown some noteworthy improvement in the first quarter of 2008 (13.4 percent), according to numbers from research firm IDC.

This is not to say that the company isn’t still struggling. It is. In fact, Palm recently reported fiscal year 2008 financials, and the numbers were grim. For the full fiscal year, Palm lost $110.9 million on $1.32 billion of revenue. The company’s net sales dropped some 26 percent from more than $401 million at the end of last year’s fourth quarter to about $296 million at the close of fourth quarter 2008. Total stockholders’ equity drastically decreased from more than $1 billion last year to

just $111 million at the end of Q4 2008. And with a new and powerful competitor on its hands, Apple and its iPhone, Palm is quickly learning that the mobile phone space is now a cutthroat playing field on which only the strong will thrive.

Palm also hasn’t upgraded its handheld operating system (OS) software in six years, which is truly absurd considering the pace at which its rivals modify and improve their software. BlackBerry-maker Research In Motion (RIM), Apple and Microsoft, which develops Windows Mobile, have all released major handheld OS upgrades in the last year—and the iPhone’s barely a year old.

So what does this all mean? Well, first of all it means that Palm’s still got tricks up its sleeve and it is not simply willing to lie down and die. You’ve got to give credit where credit’s due, and Palm deserves some. But the company hasn’t fully pulled itself out of the gutter and into the light quite yet.

What’s your take on the whole thing? Does Palm stand a chance against RIM and Apple, the number one and two smartphone producers in the United States? Do you think success is as easy as my man Rob suggested? Is it really as simple as creating “great product?” Or is there something else to it?

AS