Rubenstein Admits Newest Palm Handhelds Not Paying Off

Despite being well-reviewed and reviving excitement in the company, the Palm Pre and Palm Pixi are just not selling as expected -- a tough break for the pioneering device maker, which has been counting on the phones to reinvigorate its business.

Palm (NASDAQ: PALM) CEO Jon Rubenstein issued a memo to staff one day before a warning the Street that Palm's revenues for the current quarter would come in at least $100 million lower than analyst expectations of $424.7 million, according to Thomson Reuters.

Rubenstein also said full-year revenues would be below its previously forecasted range of $1.6 billion to $1.8 billion, "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."

"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," Rubenstein wrote in his memo to staff.

Glory Days of Past Palm PDAs Fading Fast, Pre Too Late?

The Palm Pre made a huge splash at the 2009 Consumer Electronics Show and launched later that year on Sprint, the No. 3 U.S. carrier behind Verizon Wireless and AT&T. This year Palm launched with the much larger Verizon, which already has an armada of smartphones for customers to choose from, including the BlackBerry line and variety of Android phones, including Motorola's Droid.

In a statement issued today, Palm said third-quarter fiscal year 2010 revenue 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. The company will release its third-quarter financial results on March 18.

Perhaps a hint as to its problems can be found in a January metrics report from AdMob (available here in PDF format), the metrics company soon to be acquired by Google (NASDAQ: GOOG).

In a survey of 963 people, AdMob found 91 percent of iPhone users and 88 percent of iPod touch users would recommend their device to a friend, compared with 84 percent for Android users and 69 percent for users of the webOS-based Palm Pre and Pixi. webOS users are 3.4 times more likely to not recommend their device, compared to iPhone OS users.

Palm's best bet at this point is to find a buyer, according to Ken Dulaney, a Gartner research vice president for mobile devices. Dulaney cited a number of strikes against Palm: It stuck to its aging Treo smartphone too long, the Pre was too late from introduction to market, it needs to go all-touchscreen, the OS is too dependent on gestures and Palm didn't have the money to go head-to-head against Apple when it comes to app stores.

"They aren't gone yet and there are some very good people with a lot of knowledge about this business," he said in an e-mail to InternetNews.com. "Ultimately, they are a small player in a market of behemoths. That is why they need to be acquired. My favorite is RIM because they need a touchscreen OS given the poor showing of the Storm."

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.


Palm, pre, webOS, palm handheld, mobile device