Palm’s New OS Plans and Apple Poaching

In my last post on Palm, Inc. (Nasdaq:PALM), I had said that 2008 would be a breakthrough year for Palm’s turnaround, as Jon Rubinstein works through a new product cycle to resuscitate the company.

Centro is doing well for Palm, but financially, it is still a challenge because of its low margins. In fact, it has been selling more than 30,000 units a week with Sprint and it recently added AT&T as a carrier that should further boost its sales volume. For Q3 fiscal 2008, Centro helped the smartphone sell-through reach a high of 833,000 units, up 13% y-o-y. Check out my interview with Eric Benhamou in which I discussed Palm’s turnaround challenges. Other relevant posts are available here, here and here.

According to its financial results reported last week on March 20, Palm’s total revenue in the third quarter was $312.1 million, down around 11% q-o-q mainly due to the declining handheld business and the lack of any star high-end product. Net loss was $31.5 million, or $0.30 per diluted share, which included restructuring charges of $12.3 million. Last year, net income was $11.8 million, or $0.11 per diluted share.

Smartphone revenue was $275.4 million or 88% revenue. Smartphone ASPs declined to $331 per unit as a result of the product mix shifting toward the lower margin Centro. It expects the ASP decline to continue in the next quarter. But by first half of the next fiscal year, it expects ASPs to rebound with the revamp of its Windows Mobile high end enterprise phones later this year. Its high end line badly needs a revamp to compete with Apple’s iPhone and RIM’s Blackberry.

But what could really make or break its turnaround is its new OS platform that is expected to release by the end of the year. Products based on the new OS would be released next year. The game in smartphones have shifted from hardware to software, and Palm’s proprietary OS has been stuck in the middle ages for a long time, while Apple has leaped forward with the iPhone.

On the personnel side, Jon Rubinstein has pulled in Mike Bell as SVP of product development. Bell was previously at Apple. Interested observers are eagerly awaiting for some magic here!

Palm’s stock is trading around $5 and market cap is around $563 million. It hit a 52-week low of $4.21 on Monday, March 24. The current revenue and stock price, in my opinion, are pretty much immaterial, since the time for Palm to show real results has not yet come. Q4 2008 and Q1 2009 would be the time for real action.