Comtex SmarTrend Alert

3/19/2010-Morgan Joseph downgraded Palm (NASDAQ:PALM) Friday from Hold to Sell with a $0 price target after the company posted worse-than-expected FQ3 results and disappointing FQ4 guidance.
Analyst Ilya Grozovsky said, "Last night, Palm reported F3Q10 non-GAAP sales and a non-GAAP EPS loss of $366mm and $0.61, respectively. This compares to our non-GAAP sales and EPS loss estimates of $300mm and $0.49, respectively. The better than anticipated F3Q10 results (preannounced non-GAAP sales guidance for F3Q10 was $300-320mm) were due to the unexpected delivery of in-transit shipments in the last few days of the quarter. More importantly, management guided F4Q10 revenue to less than $150mm after weak sell-through rates at carrier customers in F3Q10. webOS sales, although not broken out, accounted for the majority of the 960,000 units shipped, and 408,000 units sold through to carriers in F3Q10. We note that Palm also incurred a $45mm charge for reserves made for inventory purchase commitments. As such, gross margins were 17.3%, significantly lower than our 26.0% estimate. We expect margins to be negatively impacted in F4Q10 as well. Given the weaker than expected sell-through rates and high levels of inventory at carriers, we are lowering our estimates for CY2010 and introducing CY2011 estimates. Further, we are downgrading Palm shares to SELL with a $0 price target, from a Hold. We are now doubtful about Palm's survival for a number of reasons: 1) We are skeptical that Palm's efforts at training Verizon representatives are going to have a meaningful impact on consumer demand; 2) Despite Palm's efforts at conserving cash, we estimate that it may only have sufficient cash to operate through mid-CY2011 given expected cash burn and net losses; and 3) As previously mentioned (see note on March 9), we do not anticipate a strategic buyer approaching Palm."