Palm Inc. teeters instead of soars

SAN FRANCISCO - Last year, Palm thought it had all the pieces for a turnaround in the market it pioneered: a new CEO known for making the iPod a household name, a sleek new smart phone called the Pre, and fresh, intuitive operating software.

Instead, Palm is in danger of going the way of its 1990s Pilot, making it the latest innovator to learn that great technology and an accomplished leader do not guarantee success.

Several analysts say Palm Inc. might not stay independent for more than a year or two. It could be too late to stop the momentum of Apple Inc.'s iPhone and Research In Motion Ltd.'s BlackBerrys - and a growing crop of phones running Google Inc.'s Android software.

Palm spokesman Derick Mains said the company had no comment.

Consumers have gravitated toward smart phones for their versatile features, such as Internet access and applications that can be downloaded. One out of six U.S. adults had a smart phone last year, Forrester Research says.

But Palm, a leader in the early days of handheld computing, was slow to adapt. It began fighting back in earnest in January 2009 at the International Consumer Electronics Show. It unveiled the stylish touch-screen Pre and webOS, software that allows Palm phones to do something the iPhone can't - run multiple apps simultaneously.

Ed Colligan, who was then Palm's chief executive officer, said at the time that the new products somewhat marked a relaunching of Palm. But it hasn't gone as smoothly as Palm hoped.

Despite widespread availability and positive reviews for the products, consumers have not embraced them. Palm sold 810,000 phones in the quarter that ended Aug. 28. In the next quarter, sales fell to 573,000. Palm's latest report, due Thursday, is not expected to be bright.

Discouraged investors have sliced the company's stock price by more than half since the Pre hit stores. In that time, shares of Apple have risen nearly 50 percent to all-time highs, while RIM shares have fallen 11 percent.

Many analysts believe Palm's latest products are good, but the company hasn't been able to make potential customers realize that.

Not for a lack of trying: Palm spent $74.1 million on sales and marketing in its last reported quarter, up 64 percent from the previous year.

On Palm's end, at least, the marketing push is likely to last for several more quarters as it tries to connect with consumers, Deutsche Bank analyst Jonathan Goldberg said.

Palm is much tinier than its key competitors. It takes Palm an entire quarter to sell as many phones as Apple sells in less than a week.

One thing Palm has: a CEO who helped make Apple what it is.

Right before the Pre launch, Colligan was replaced by Jon Rubinstein, 53, who spent a decade at Apple during its own comeback run. He was a pivotal figure behind the colorful iMac computers and the iPod.

Still, even the most astute leadership isn't enough in such a competitive market, Canaccord Adams analyst Peter Misek said:

"It takes distribution, it takes cash, it takes luck. It takes a lot of things, and if all those things don't click, your probability of success is low."

It also takes time. Palm wasted it during many years of corporate restructuring, according to Donna Dubinsky, a former Palm CEO and board member.

So what will happen to Palm now?

Kaufman Bros. analyst Shaw Wu thinks Palm could be bought in the next year by a company such as Motorola or Dell. That would give them their own smart-phone software.