Palm's future: A vicious cycle

With weak sales in its third quarter and a sobering forecast for the fourth, the handset maker is mired in "underperformance."

Larry Dignan

Palm's third quarter was a disaster, the fourth-quarter outlook was worse, and the company is stuck with an inventory glut as Verizon Wireless customers went with the BlackBerry Tour and Motorola Droid over the Pre Plus and Pixi Plus. The big question: where does Palm go from here?

Simply put, Palm is in a vicious cycle that goes like this:

• Sales in the company's third quarter were weak. So weak that Palm's sell-through in the third quarter was 408,000 units vs. a sell-in of 960,000 units. That means Palm seriously overestimated demand for its devices.

• Fourth-quarter revenue will be about $150 million, or half of the Wall Street's official estimate. Piper Jaffray was expecting revenue of $203 million in the fourth quarter, though.

• Now Palm will have to discount, take charges for inventory, and suffer a gross margin hit to lower the inventory of Pre and Pixi devices.

That's a lot of "underperformance."

Read more of "Palm: Pondering the future and the vicious cycle ahead" at ZDNet's Between the Lines.