“The Pre is probably being talked about more than other phones right now because of the marketing and advertising, and that’s a good thing. Could the ads work harder to show exactly how the phone works? Yes, but we knew it would be polarizing people to have a woman not shout at them and tell an interesting story.”

– Gary Koepke, co-founder of Modernista, the agency responsible for the absurd marketing campaign that launched the Palm Pre

Well, Modernista founder Gary Koepke was right about one thing: The absurd ads his agency conceived for the launch of the Palm Pre really could have worked harder to show how the phone worked–a lot harder. Because here we are a year after the device launched and Palm (PALM), which was the toast of the Consumer Electronics Show when it announced the Pre, is languishing amid lousy sales and an alarming inventory problem.

Little wonder then that Palm is rumored to be cutting the agency loose, evidently having finally realized that launching a bet-the-company smartphone with an advertising campaign that says almost nothing about it was unwise, if not utterly foolish–almost as foolish as choosing as a lead for that ad a female character far better suited for a role in “The Exorcism of Emily Rose.”

In the end, Modernista’s Palm campaign was simply far too short on product description and far too heavy on inane imagery (an army of jumpsuit-wearing Chinese dancers and a strange mumbling woman on a rock?) to be effective. If, as Advertising Age claims, Palm is dumping Modernista and negotiating with several other agencies to handle upcoming campaigns, it’s a wise move. Here’s hoping we see some new ads with clearer messaging and a focus on features over directorial foppery in the future.

PREVIOUSLY:

• Creepy Lady Mercifully Absent From New Palm Commercials, Redux
• Creepy Lady Mercifully Absent From New Palm Commercials

Going head-to-head with the iPhone 3GS on AT&T will be difficult enough for Palm (PALM). Competing with the smartphone’s souped-up successor on AT&T (T) and perhaps Verizon (VZ) could be disastrous.

The Apple (AAPL) iPhone has been AT&T’s hero device since launch, and that’s not going to change anytime soon. Said a company spokesman: “The iPhone will be an important device for us for quite sometime.”

The Pre Plus and Pixi Plus less so, I imagine. It’s a safe bet that the same will be true of Verizon if the carrier adds the iPhone to its lineup. Analysts mulling the consequences of such a deal say that pent-up demand for the iPhone on Verizon’s network could result in a massive burst of iPhone subscribers for the company.

One scenario put forth by Bernstein Research this morning suggests Verizon could stand to gain 6.4 million new iPhone subscribers in 2010 alone, many of them existing Verizon subscribers upgrading to the iPhone. Which would obviously leave fewer subscribers to upgrade to Palm’s devices.

That leaves Palm in a position that’s arguably worse than the one it found itself in when its devices debuted on Verizon, a position it blamed for its lousy third quarter. “If we could have launched at Verizon prior to the Droid, I think we would have gotten the attention the Droid got,” Palm CEO Jon Rubinstein said at the time.

But as I noted last week, Palm did not launch prior to the Droid. And now the company is launching on AT&T just as the carrier presumably prepares to introduce a new Apple iPhone (iPhone HD?).

Now it’s looking like all the hard work Palm did to evangelize its webOS phones at Verizon could be overwhelmed by the deluge of interest almost certain to accompany a Verizon iPhone.

Which leaves Palm in a vulnerable position, indeed. CEO Rubinstein claims Palm should have gotten the attention garnered by Droid. Will he make similar claims if Palm suffers further woes from a next-generation iPhone on AT&T–or a brand new one on Verizon?

FURTHER READING:

• A Palliative for Palm
• Good Luck Competing on the iPhone’s Home Turf, Palm
• Exercise in Futility? Palm Pre Plus, Pixi Plus Headed to AT&T
• Palm: Pssst. Wanna Buy 1.15 Million Smartphones?
• Palm Pileup: Weak Smartphone Sales and a Gruesome Q4 Forecast
• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

Why?

After the vicious beating the market has given Palm (PALM) these past few months, the company’s stock–down a gruesome 75 percent since October–already well reflects its woes and the challenges it faces. And it’s still conceivable that the company may end up an acquisition target. So there’s that as well.

“We continue to view Palm as one of the share losers in the high-growth Smartphone segment,” Long wrote. “In our view, the company is too small to compete and the internally developed WebOS operating system is no longer a major differentiator. The end game for Palm is most likely to combine with a large OEM that wants to own its operating system and can leverage its brand and distribution platform.”

FURTHER READING:

• Good Luck Competing on the iPhone’s Home Turf, Palm
• Exercise in Futility? Palm Pre Plus, Pixi Plus Headed to AT&T
• Palm: Pssst. Wanna Buy 1.15 Million Smartphones?
• Palm Pileup: Weak Smartphone Sales and a Gruesome Q4 Forecast
• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

But analysts aren’t so sure. In a note to clients this morning, Kaufman Bros. analyst Shaw Wu wondered just how much good the AT&T (T) deal will do for Palm (PALM) given the pricing of its smartphones. The company is selling the Pre Plus and Pixi Plus for $149.99 and $49.99, respectively, with a two-year service agreement and after a $100 mail-in rebate. Hardly a compelling proposition when the prices of competing devices like Apple’s (AAPL) iPhone and Research in Motion’s (RIMM) BlackBerry are significantly lower.

“While we are pleased to see PALM expand its footprint, we are unsure how meaningful the impact will be as we believe AT&T is the most competitive carrier out there being the exclusive partner for iPhone in the U.S,” says Wu. “We believe PALM’s price points are arguably too high when one can get an iPhone 3G for $99 and a BlackBerry for as little as $9.99.”

Exactly. And beyond price, there is the issue of AT&T’s relationship to the iPhone, which has spiked both its subscriber numbers and wireless data revenue since the carrier first began peddling it. Is AT&T is going to put the Pre and Pixi out in front, given what the iPhone has done for the carrier’s financials? Does Palm’s AT&T deal include a commitment to aggressively market and sell its devices? Because it’s going to need one if it’s to compete with the iPhone on its home turf.

As Palm CEO Jon Rubinstein observed on the company’s latest earnings call, launching a pair of new smartphones on a carrier that’s already heavily invested in a hero device–as Verizon (VZ) is with Droid and AT&T is with the iPhone–is no easy task. Said Rubinstein: “If we could have launched at Verizon prior to the Droid, I think we would have gotten the attention the Droid got.”

But you didn’t. And now you’re launching on AT&T after the iPhone, a device with far greater critical mass than Droid. Why will things be any different this time around?

FURTHER READING:

• Exercise in Futility? Palm Pre Plus, Pixi Plus Headed to AT&T
• Palm: Pssst. Wanna Buy 1.15 Million Smartphones?
• Palm Pileup: Weak Smartphone Sales and a Gruesome Q4 Forecast
• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

Or perhaps not.

Against the backdrop of the CTIA Wireless show in Las Vegas, Palm (PALM) this morning said AT&T is adding the Palm Pre Plus and Palm Pixi Plus to its handset lineup, an announcement expected since early January.

The two phones will be sold for $150 and $50 respectively, with a two-year contract and after an annoying $100 mail-in rebate. No word yet on availability. Palm says only that the devices are coming “soon.”

With today’s announcement, Palm’s devices will soon be available through three of the four major carriers in the U.S. Will this breadth of distribution be enough to keep the company afloat? Tough to say. As I noted earlier, the company’s relationship with Verizon (VZ) has not been as successful as Palm had hoped.

As CEO Jon Rubinstein noted during Palm’s last earnings call, Verizon was a bit too focused on new Android handsets like Droid to give the Pre and Pixi much of a marketing and sales push. In fact, to drive demand at Verizon and raise apparently limited customer awareness of Palm’s smartphones, the company sent out brand ambassadors to train Verizon’s sales staff.

Given the iPhone’s high profile on AT&T (T) and rumors that Apple (AAPL) is prepping a new iteration of the device for summer release, one wonders if Palm’s smartphones will be anything more than an afterthought for the carrier and its customers.

FURTHER READING:

• Palm: Pssst. Wanna Buy 1.15 Million Smartphones?
• Palm Pileup: Weak Smartphone Sales and a Gruesome Q4 Forecast
• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

“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 CEO Jon Rubinstein

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?

Remarking on Palm’s gruesome third quarter during an earnings call yesterday, CEO Jon Rubinstein called the company’s performance “extremely disappointing to me personally.” This sentiment seems to be widely held among investors, who are dragging the company’s shares through the mud today–at $4.66, Palm is down 17.52 percent as I write this–and among analysts questioning whether Palm can ever pull off the turnaround for which it’s striving.

Analysts issued a handful of research notes on the company this morning and they are all viciously negative. The headlines proclaim that Palm’s brand value has collapsed, its financial performance is a disaster, and its execution missteps in a business as competitive as the mobile market have left its prospects dubious.

Over at Canaccord Adams, Peter Misek essentially threw in the towel on the company: “We believe that Palm’s troubles will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support,” he wrote.

“With what appears to us to be roughly 12 months of cash on hand, an accelerating burn rate, a complete lack of earnings visibility, and substantial debt and preferred equity,” Misek added, “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 (previously US$4.00).”

Then there was this from Kaufman Bros. analyst Shaw Wu: “While we believe PALM has some value with its webOS and tight integration of hardware and software, we are unsure of the company’s prospects as an ongoing concern.”

And this from Morgan Keegan analyst Tavis McCourt: “It is certainly looking less likely that Palm can execute this turnaround on its own, but the company has at least one more chance with new hardware later this year to try and create some real consumer demand for webOS.”

And finally, this from Needham and Company’s Charlie Wolf: “Palm appears to be in a no-win situation. The company could invest even more in marketing the Pre and Pixi. But it’s unclear whether Palm could ever spend enough to reach a position where Pre and Pixi sales were sufficient to cover its marketing bill and return the company to profitability.”

Wolf concludes that “In the mean time, time is running out. Supported by an increasing number of smartphone manufacturers, the Android juggernaut is continuing to gain steam. And the day when Microsoft (N/R) launches Window Phone 7 and rejoins the spending party is drawing closer.”

If it’s true that bad news begets bad news, Palm is in for a very rough time of it in the months ahead. The company has already lost half its market value since the year began. Time for a takeover? Perhaps, though Rubinstein seems intent on staying the course.

“There’s all kinds of speculation out there that we are going to get bought, that we are not going to get bought,” Rubinstein said on the earnings call Thursday. “We’re not going to comment on any of those. Obviously, we are a public company. And if there’s a reasonable proposal, of course the Board has to consider it. But, that being said, our focus since the day I arrived here, and that’s almost three years ago now, is to build a great company with a great mobile platform and great products. And that has been our focus.”

FURTHER READING:

• Palm Pileup: Weak Smartphone Sales and a Gruesome Q4 Forecast
• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

The good news: For its third quarter, Palm reported a net loss of $18.5 million, or 13 cents a share, on revenue of $349.9 million. That’s nicely ahead of its recent guidance of $285 million to $310 million, but obviously well below the $424.7 million analysts had been expecting before the pre-announcement.

The bad news: While Palm shipped 960,000 smartphones during the quarter, the company sold only 408,000 of them. That’s about 30 percent less than it sold last quarter and significantly fewer than the 500,000-600,000 analysts were looking for. Palm has a lot of unsold inventory sitting around.

And then there was this: Looking ahead, the company said it fourth-quarter revenue will be less than $150 million. That’s about half what Wall Street was expecting. Pure ugliness.

“Our recent underperformance has been very disappointing, but the potential for Palm remains strong,” said Jon Rubinstein, Palm chairman and chief executive officer. “The work we’re doing to improve sales is having an impact, we’re making great progress on future products, and we’re looking forward to upcoming launches with new carrier partners. Most importantly, we have built a unique and highly differentiated platform in webOS, which will provide us with a considerable–and growing–advantage as we move forward.”

At $4.94, Palm shares are down more than 12 percent as I write this.

Notes from the earnings call:

• There are now over 2,000 apps in the Palm App Catalog.
• Handset sales are predominantly webOS.
• Rubinstein says Palm has been held back by “execution missteps.”
• Rubinstein declined to discuss speculation about a possible acquisition of the company

FURTHER READING:

• Could Be Worse, Could Be Raining: Palm’s AT&T Launch Delayed?
• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

In his latest note on the company, Canaccord Adams analyst Peter Misek says Palm’s (PALM) already substantial troubles are mounting. Palm’s latest problem: Delays in the long-rumored launch of its smartphones on AT&T (T). Originally expected this spring, sources now say the debut of new Pixi and Pre models has been pushed back until summer.

“Beyond generally lacklustre handset sales in the current quarter, which are already reflected in our previous estimates, we have recently learned that AT&T has delayed the planned launch of the Pre and Pixi on its network from April to June/July,” Misek writes.

“Moreover, we believe that this is more than just an ordinary delay,” the analyst adds, “as AT&T has cited a long list of technical issues with the Pre and Pixi. Furthermore, the carrier has decreased its initial order size and has decided to sharply reduce its marketing budget for the launch.”

So: A delayed launch on another major carrier, a smaller first order and a soft marketing budget. On top of these issues, Misek cites a mysterious “list of technical issues.” I’m not quite sure what he is hinting at; my sources tell me there are no problems with the devices on AT&T’s network–but perhaps Misek knows something they don’t.

Leaving the mystery list aside, this is bad news all around for Palm, which clearly needs the additional distribution it will get through AT&T sooner rather than later. Misek is slashing his February quarter unit shipment forecast to 670,000 from 720,000 and his 2011 forecast to 3.58 million units from four million.

Honestly, this getting difficult to watch.

Palm is scheduled to report third-quarter earnings after Thursday’s closing bell.

FURTHER READING:

• Could WebOS Licensing Be Palm’s Salvation?
• Palm’s Salvation? Less Push, More Pull.
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• Time to Start Looking for a Buyer, Palm?
• 2010: Year of the Palm? Maybe Not…
• Analyst: Palm May Be Acquired in the Next Two Years

Bring some better hardware to market and back it up with a strong carrier-driven advertising campaign? An easy answer, I suppose.

But there’s another option as well, put forth by Morgan Stanley (MS) analyst Ehud Gelblum: License webOS. If Palm were to shutter its manufacturing operations and adopt a licensing model for smartphones and other devices, it might just see its business improve.

Says Gelblum: “We calculate that if Palm licensed its OS for $7 per device and won 5-7 percent of the smartphone market in F2013, this could yield ~$0.40-0.50 earnings per share in F2013.”

Certainly an interesting idea–particularly with those possible returns–though it’s not without problems. For one thing, there’s the issue of competition. Android already has quite a bit of traction in the mobile OS market, as does Symbian. And soon, Windows Phone Series 7 will debut, giving device manufacturers yet another option.

Could webOS hold its own against these three? Perhaps, if Palm (PALM) were able to nail down some big hardware partners–HTC comes to mind. But the company would have to tweak webOS to run on non-Palm hardware to do so and, presumably, that would take some effort.

Still, it might be worth pursuing, particularly given the straits in which Palm finds itself these days. A sudden explosion in sales volume at Verizon (VZ) and, later this year, AT&T (T) seems increasingly unlikely.

Palm lost about half a billion dollars in market value last week after the company warned of a nasty revenue shortfall. And it seems that was only the beginning of what may prove to be a long and painful decline. Investors brutalized Palm (PALM) Thursday, slashing nearly five percent from its share price, dragging it to $5.98 from $6.26.

$5.98 per share. A year ago Palm’s stock was trading at $18.09. Now, analysts like Matthew Thornton at Avian Securities are saying they see it falling to $4–at least in the short term.

Lousy sales of the company’s webOS smartphones have clearly undermined Palm’s efforts to regain its former glory. With the mood on The Street this dark, you’ve got to wonder if anyone believes that’s even possible anymore.

UPDATE: Here’s a bit of good news for Palm. At the Game Developers Conference in San Francisco next week, the company plans to release its webOS Plug-in Development Kit, a set of tools that may spur development or more, and higher quality, third party apps.

Sources close to Palm (PALM) tell me production resumed last week–on Feb. 22 to be exact. Ironically, that was right before the company warned that lousy sales of the Pixi and Pre and their “plus” variations would cause a revenue shortfall in the current quarter and in fiscal 2010.

PREVIOUSLY:

• Palm’s Salvation? Less Push, More Pull.
• Double Face-Palm: Analysts React to Palm’s Lowered Guidance
• And if Palm’s Project JumpStart Doesn’t Work Out, There’s Always “Project Defibrillator”
• Time to Start Looking for a Buyer, Palm?
• Palm Shorts Celebrating Chinese New Years in Style Thanks to OTR Global Report

Will lousy brand awareness be Palm’s Waterloo? With weaker than expected launches of the Pre and Pixi at new carrier partner Verizon, it’s beginning to look like it.

Certainly, Palm’s leadership appears to believe that insufficient carrier support is largely to blame for its current woes. In an all-hands memo to employees yesterday (full text below), Palm CEO Jon Rubinstein said the company is taking some extraordinary measures to address unexpectedly weak sales for its handset lineup. To drive demand at Verizon and raise its customers’ apparently limited awareness of webOS, Palm (PALM) has initiated Project JumpStart, a sort of product evangelism outreach program.

“To accelerate sales, we initiated Project JumpStart nearly three weeks ago. Since then, nearly two hundred Palm Brand Ambassadors, supplemented by Palm employees from Sunnyvale, have been training Verizon (VZ) sales reps across the U.S. on our products. Early results from the stores have already shown improvement on product knowledge and sales week over week. You may have also seen a growing number of Palm ads on billboards, bus shelters, buses, and subway stations–all getting the word out about Palm.”

A wise move, particularly given reports that Verizon sales reps unfamiliar with Palm’s smartphones often opt to pitch more familiar devices like Motorola’s (MOT) Droid and RIM’s Blackberry to new customers. Additional in-store training should help drive sales volume, assuming Palm’s offerings are compelling and differentiated enough to withstand comparison with rival devices.

The question, of course: Are they? And while initial reviews of the Pre and webOS operating system suggested they were, it’s hard not to look at Palm’s current situation and conclude that they really might not be–particularly with new and impressive Android and Windows Phone 7 devices headed to market and Apple (AAPL) and Research in Motion (RIMM) both presumably working on refreshes of their iconic devices.

“Given the sizable discounts now prevalent on the Pixi, it now suggests that the real problems for the Pixi and the Pre go beyond insufficient carrier support and unfocused TV advertising campaigns,” CL King analyst Lawrence Harris observed in a research note to clients this morning. “Rather, consumers are not finding the Pixi a compelling product in an increasingly competitive smartphone market.”

If that’s truly the case, these Palm Brand Ambassadors the company is sending to Verizon (VZ) have their work cut out for them, at least at the moment. Sources close to Palm tell me the company plans to introduce at least one new smartphone this year. Perhaps that will be the device that drives demand and pushes the company back to profitability.

Team,

This morning we announced preliminary results for our 2010 third quarter. Since the quarter has not yet closed, it is too soon to offer exact numbers, but we stated that we expect to report revenues for Q3 between $300 and $320 million. We also announced that we expect our revenue for this fiscal year to fall below the guidance we gave to Wall Street, which ranged from $1.6 to $1.8 billion. As we mentioned in our press release, our softer than expected performance is due to slower than expected customer adoption of our products, which in turn has prompted our U.S. carrier partners to put additional orders on hold for the time being. On a positive note, we expect to exit the quarter with over $500 million in cash on our balance sheet. We’re scheduled to announce our full financial results in March.

I realize this news is difficult to swallow. We made this announcement today to prevent a surprise for Wall Street when we announce quarterly earnings in March. In the meantime, the entire executive team has been working extremely hard to improve product performance, and have implemented a number of initiatives to increase awareness and drive sales.

Dave Whalen and I just returned from a very successful meeting with Verizon Wireless, where they acknowledged that their execution of our launch was below expectations and recommitted to working with us to improve sales. To accelerate sales, we initiated Project JumpStart nearly three weeks ago. Since then, nearly two hundred Palm Brand Ambassadors, supplemented by Palm employees from Sunnyvale, have been training Verizon sales reps across the U.S. on our products. Early results from the stores have already shown improvement on product knowledge and sales week over week. You may have also seen a growing number of Palm ads on billboards, bus shelters, buses, and subway stations–all getting the word out about Palm.

All of these efforts are examples of how we are working to accelerate adoption and grow distribution of webOS. In the next few weeks, your management will work with you to make sure your priorities are laser-focused, primarily on helping to increase sales, improve product quality and differentiate the Palm product experience.

Our goals are taking longer than expected to achieve, but I am still confident that our talented team has what it takes to get the job done.

We’ll schedule an all-hands meeting after our earnings announcement in March, and I’ll be happy to answer your questions.

Go team!!!

jon

Consider this from J.P. Morgan analyst Rod Hall: “No matter how good the product, we believe that penetrating the channel will continue to be difficult for Palm and will only get tougher as more competitive touch handsets come to market through the year.”

And this from UBS analyst Maynard Um: “Demand weakness is not necessarily a surprise as we noted earlier that a slowing US net add environment would likely have the greatest impact on Palm given its small base. However, the magnitude is slightly surprising to us given management’s prior conviction & visibility to orders. While Palm cites deferral of orders to future periods, WebOS demand will likely be called into question. With the US market being Palm’s best opportunity for more levered growth, we are more concerned with the future growth opportunity.”

Finally, there’s this from Deutsche Bank analyst Jonathan Goldberg, who says it’s going to take a long, long time for Palm’s fundamentals to improve, given its weak traction in the smartphone market: “Our concern now is that bad publicity feeds on itself, with the poor stock price performance denting Palm’s brand and causing potential carrier partners to lose interest,” he wrote in a note to clients.

“There are also potential upside risks as well including the potential for Palm to be acquired, but we think the poor showing to date limits the company’s negotiating leverage,” Goldberg added. Ultimately, we think Palm has the resources to survive and potentially build its position back, but it will take considerable time and they face serious risks in the interim.”

Serious risks, indeed. If Palm (PALM) has fared this poorly in the smartphone market of 2009, how will it fare in the smartphone market of 2010 and the more formidable rivals the year brings with it?

It was hard enough to compete against Apple’s (AAPL) iPhone and RIM’s (RIMM) BlackBerry last year. In 2010, Palm must compete with these popular smartphones and a host of new Android phones, not to mention some impressive Windows Mobile 7 devices heading to market. No easy task, particularly when carrier partners like Verizon (VZ) and Sprint (S) don’t quite seem to be giving Palm devices the marketing push they need to succeed.

Palm (PALM) expects third-quarter revenue to be between $285 million and $310 million–significantly less than the $425.4 million analysts had been expecting. As a result, revenue for the fiscal year will be “well below” the $1.6 billion to $1.8 billion the company had projected.

Damn. Puts a new spin on that Chinese New Year smartphone production respite we heard about earlier this month, doesn’t it?

Clearly, concerns about declining sales of the company’s webOS smartphones were well-founded. It now seems there’s a growing possibility they may not reach critical mass. Which is obviously worrisome because Palm has essentially bet the farm on them.

“Palm webOS is recognized as a groundbreaking platform that enables one of the best smartphone experiences available today, and our work to evolve the platform and bring industry-leading technology to market continues. However, driving broad consumer adoption of Palm products is taking longer than we anticipated,” Palm CEO Jon Rubinstein said in a statement. “Our carrier partners remain committed, and we are working closely with them to increase awareness and drive sales of our differentiated Palm products.”

Rubinstein’s reassurances have done little to temper investor disgust over the company’s news. At $6.68, Palm shares are down more than 17 percent as I write this.

Perhaps it’s time for Palm to start looking for a buyer, whether Nokia (NOK), Dell (DELL) or someone else. Not that these companies are interested. For Palm to be a good acquisition target, it needs to demonstrate viability, something it’s obviously having trouble doing.

Below, Palm’s press release detailing today’s ugly news.

Palm, Inc. (NASDAQ:PALM) today indicated that it expects that revenues for the third quarter of fiscal year 2010 will be in the range of $285 million to $310 million on a GAAP basis and in the range of $300 million to $320 million on a non-GAAP basis. Revenues for the quarter and full year are being impacted by slower than expected consumer adoption of the company’s products that has resulted in lower than expected order volumes from carriers and the deferral of orders to future periods. Accordingly, Palm expects fiscal year 2010 revenues to be well below its previously forecasted range of $1.6 billion to $1.8 billion. The company will provide more detail on its financial results during Palm’s third-quarter financial results conference call currently scheduled for Thursday, March 18.

“Palm webOS is recognized as a groundbreaking platform that enables one of the best smartphone experiences available today, and our work to evolve the platform and bring industry-leading technology to market continues. However, driving broad consumer adoption of Palm products is taking longer than we anticipated,” said Jon Rubinstein, chairman and chief executive officer. “Our carrier partners remain committed, and we are working closely with them to increase awareness and drive sales of our differentiated Palm products.”

The Company expects to close its third fiscal quarter with a cash, cash equivalents and short-term investments balance in excess of $500 million.

That’s the word from Deutsche Bank analyst Jonathan Goldberg, who believes there’s a good chance the company will be acquired in the next two years.

In a note to clients this week, Goldberg argues that Palm (PALM), with its new Verizon (VZ) distribution deal in hand and nearly nearly 1,300 webOS applications in its App Catalog, is building the sort of market momentum that would be attractive to a larger company looking to break into the mobile device market–or shake it up.

“Big consumer electronics companies need some way to participate in the market and most of them have failed to come up with a successful strategy,” Goldberg writes. “Street consensus appears to be that Palm will be acquired in the next year or two, which given the current environment we think could be a reasonable possibility.”

But to make it a reality, Palm must first demonstrate its viability. “We think Palm needs to prove it can be a stand-alone entity, a viable business in its own right. We clearly think that it can.”

Clearly. Goldberg believes Palm will likely sell 600 thousand webOS devices through Verizon this quarter, and he says that Palm’s App Catalog, whose applications already outnumber those in Nokia (NOK) and Microsoft (MSFT) stores, will soon exceed those available in RIM’s (RIMM) App World and possibly the Android Market as well. That would certainly be enough to elicit an acquisitive glance from a company with mobile ambitions. Just who that would be, however, Goldberg doesn’t speculate about.

Of course, Goldberg is far from the first analyst to posit Palm as a takeover target. I’ve written here before about speculation that the company might be acquired by Dell (DELL) or Nokia.

Sadly, the same cannot be said for demand abroad. According to Mobile Today, U.K. sales of the Pre have been disappointing. So much so that O2, Palm’s (PALM) carrier partner in the country, has begun sending sales specialists to its retail outlets in a bid to juice holiday sales. Seems the iPhone juggernaut is as formidable an opponent in the U.K. as in the U.S.

“We have sold 20 times more [iPhones than Palm Pre handsets],” one O2 retail manager told Mobile Today. “The iPhone is a more established brand and there has been more advertising. They are both good handsets but, with such a small price difference, customers take the view they might as well go for the iPhone.”

An unfortunate take on Palm’s prospects in the U.K. That said, it’s not the only one. In a research note issued this morning, UBS said its checks indicate that the Pre is doing “okay” internationally and that it expects webOS handset sales to track largely in line with expectations on a sell-in basis. Here’s hoping we find out if that’s the case when Palm reports second-quarter results next Thursday.

Staggering, considering the Pixi arrived at market just four days ago, but perhaps necessary given early and widespread complaints about the device’s slow operating speed, some unfavorable reviews and the fact that the Pre–the Pixi’s more robust elder sibling–is now selling for $99.99 and $79.99 at Wal-Mart (WMT) and Amazon (AMZN), respectively.

UPDATE:

Palm’s aren’t the only smartphones being heavily discounted as we head into the holidays. Motorola’s and HTC’s are as well. Amazon is offering the Moto’s Droid for $149.99 and Overstock is peddling the HTC Eris for $49.99.