The above chart shows the price action in Palm after Peter Misek of Canaccord Adams said shares in the market of the Pre smart phone maker were worthless:
Due to Palm’s lack of earnings visibility, substantial debt and cash burn, we question the company’s status as a going concern. We believe that Palm’s troubles will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support.
While the OS does have intrinsic value, we do not believe that a strategic buyer will emerge in the near term given the poor sales performance of Palm’s devices and the availability of other handset operating systems, namely Android and the soon-to-be available Windows 7.
With what appears to be roughly 12 months of cash on hand, an accelerating burn rate, and substantial debt and preferred equity, we no longer see any value in the company’s common equity. As such, we are reiterating our SELL recommendation and reducing our target to US$0.00.
Ouch. That’s not going to help sales of the Pre is it?
The note was published in the wake of Palm’s third quarter results, which did not impress Misek or the market.
Here’s the Canaccord’s man on the results:
We believe Palm’s Q3/F10 results demonstrate our thesis on the competitive dynamics in the smartphone market – it is dominated by established players that have distribution, brand and marketing muscle.
We see the following as the key takeaways from the quarter:
• Sell-through dropped sharply to 408K units, well below shipments of 960K, implying very weak final demand for Palm’s handsets. Channel inventories have surged, suggesting dismal shipments in coming quarters.
• Sales and marketing expenses grew 32% sequentially for the second straight quarter, largely due to the marketing spend associated with the Verizon launch in the quarter.
• Q4/10 revenue guidance represents a sequential decline of approximately 57% to US$150 million as Palm appears to have pulled sales into Q3 during the last few weeks of the quarter.
• While Q3 CFO was essentially flat, this is only because the company was able to defer US$80 million owed to carriers and vendors until Q4; combined with our expectation of a US$124 million cash burn from operations in Q4, we expect cash on the balance sheet to decline meaningfully over the coming quarters.
• Given weak handset sales, elevated channel inventory and substantial marketing spend, we believe investors will focus largely on Palm’s balance sheet over the coming quarters, as the company’s status as a going concern is called into question.
What a predicament.