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Commentary: Palm blames economy

The company's earnings troubles could end up benefiting those shopping for personal digital assistants.

By Abha Garg, Gartner Analyst

Palm's earnings troubles could end up benefiting those shopping for personal digital assistants.

As with other hardware companies that have had to lower earnings expectations, Palm cited the overall slowing of the economy. Palm itself believes that the slowdown is industrywide. According to its quarterly conference call with financial analysts, Palm sees more weakness in the United States than in other regions.

And, in fact, Palm's lowered expectations could be in line with the uncertain U.S. economic conditions. The uncertainty in the economy could reduce demand as IT budgets in enterprises receive greater scrutiny and, in some cases, get cut.

Several other factors may come into play as well. On the consumer front, the Christmas season is the big retail season, and people who bought devices at that time will not go out and buy new devices in the near future.

See news story:
Palm slapped for its grand ambitions
Palm is also in the middle of a product transition, with new devices just coming onto the market.

Another factor influencing the weaker financial outlook for Palm is that the average selling price of Palm devices fell in the company's third fiscal quarter, ended March 2, from $212 to $197. That drop may show that low-end devices were in greater demand.

Palm's revenue from its hardware products and accessories category (including Palm devices) fell 11 percent from the second fiscal quarter to the third. At the same time, revenue from licensing and the Palm operating system rose 28 percent. It should be noted that a vendor such as Palm may realize revenue from licensing to other vendors a quarter after the licensees themselves realize revenue from the sale of their devices.

The day after Palm released its financial earnings and lowered expectations, competitor Handspring issued a press release to say that it sees continued demand for its products. Palm will have to continue to build revenue in Palm operating system licenses and other segments to guard against pressure on its hardware revenue from Handspring and other competitors.

Gartner believes that in response to the bleaker earnings outlook, Palm will try to increase its sales volume. Palm likely plans promotions for its new products and to increase demand for existing devices. Hence, Gartner anticipates aggressive pricing in the market.

(For related commentary on how to optimize the use of a PDA, see registration required.)

Entire contents, Copyright ? 2001 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.