Palm Poised for a Comeback

The Wall Street Journal reports that Palm could be poised to fare a whole lot better on the stock market next year. Pablo Perez-Fernandez at ThinkEquity Partners said, "I believe 2006 will be a huge year for Palm. It's a company that will take a number of quarters to develop."

Key to the company's hopes will be the upcoming Windows-powered Treo, the 700W. However, will it be enough to hold off advances from other players wanting to take more share in the smartphone market, such as the upcoming Motorola Q? Charles Wolf at Needham & Co said, "That's the unquantifiable bad news on the horizon."

While it faces these new rivals, Palm will continue to tussle with Samsung Electronics Co.'s Pocket PC, and also deal with Research In Motion Ltd.'s popular BlackBerry device. The messaging device, dubbed "Crackberry" by users because it is so addictive, isn't a full-blown smart phone like the Treo, but it is seen as a barrier to Palm's success.

With so many devices crowding the market, Palm stands the risk of seeing its average selling price drop. As the king of smart phones in the U.S., Palm's products sell at a substantial premium to its competitors. But that may slip as comparable rival products hit the market.

FTN Midwest Research analyst Benjamin Bollin added, "As you see new entrants, you'll see price points decline in order for Palm to sustain or grow market share. As I look at 2006 and beyond, I'm more skeptical of the growth opportunity."

IDC analyst David Linsalata pointed out that with the rapid growth in the smartphone market, Palm still stands to gain even if just maintains. According to IDC, "57.1 million smart phones will be sold this year. The figure will balloon to 181 million by 2009."

Linsalata said, "They aren't in a position of risk. They're not a huge player that stands to lose market share. They're in a position to grow."

Two potential areas for Palm are lower-cost versions of the Treo and moving into international markets. ThinkEquity's Perez-Fernandez believed a lower-cost Palm is possible in 2006, providing a new revenue stream. He said, "Palm will be able to address multiple markets at once."