Palm: Pssst. Wanna Buy 1.15 Million Smartphones?
“Obviously, we’re disappointed in our sell-through and we’re working very aggressively right now to resolve that. … We’re working closely with all of our carrier partners and our future partners. … We want to make sure that the point of sale is well trained. So step one is to make sure that we can get in with the point of sale. Remember, webOS is a brand new operating system. And it takes a while for the people in the stores to get accustomed to something new.”
Palm shipped 960,000 smartphones during its third quarter–23 percent more than in the previous quarter. Too bad the company sold fewer than half of them, because now, on top of all its other woes, Palm (PALM) is developing an inventory problem, a nasty one, too. Looking over the company’s latest financials, Morgan Stanley (MS) analyst Ehud Gelblum puts Palm’s total channel inventory at an “alarming” 1.154 million devices.
That’s 197 days of inventory Palm hasn’t been able to move off the shelves.
Gelblum figures that even if Palm reduces its channel sell-in in its fourth quarter and manages to boost sell-through from 408,000 devices to 575,000 devices, the company will end up with a full quarter’s worth of excess inventory at the end of May.
That’s just gruesome. And as hard as Palm is striving to improve sell-through, it’s not likely to improve any time soon. Says Gelblum: “We expect Palm’s new in-store initiatives and better advertising to improve sell-thru, but excess inventory, which we estimate at 882k units or nearly 197 full days of inventory likely weigh on new device shipments and thereby revenue for several more quarters.”
Adding detail, Gelblum paints a challenging picture. “With channel inventory levels sky high, cash burn going well north of $130-150M next quarter and both a new Android phone and likely a new iPhone model all hitting store shelves in the spring and summer timeframe, we see little way numbers could begin to move back up again until at least the end of the calendar year at the earliest.”
How can Palm drag those sky-high inventory levels back to earth? Perhaps a price cut like the one inspired by its 2001 inventory glut?