Palm is cheap, says investor

[Alexander Turcic]

Despite what people say about financial analysts and their (in)ability to read the tea leaves, it makes one always feel great to hear good news about the value of one's company. In a recent 12-page research report (PDF), investment firm Sagio stipulates that Palm company is a bargain with hidden beauties. Their reasons are varied:

• Based on their valuation model, P/E is below 10
• PDA business is still very profitable and Palm is gaining market share (according to Garter this month, Palm sold 36% less handheld yoy, and market share declined to 13.9% (26.2% last year))
• Palm has innovation edge -> first hdd-based PDA (LifeDrive) (under the assumption that the Sharp Zaurus never existed)
• Palm has a "quasi monopoly" on Palm OS handhelds (is that a good thing? is that why they've just announced their first WM Treo?)
• Palm is closing in on smartphone business only behind RIMM and Nokia
• Palm is growing faster than the overall market
• Treo 650 is leading smartphone today (let's forget about the BlackBerry for a moment)
• Demand for "data enabled devices" will grow tenfold by 2008
• Microsoft-Palm "Treo 700" deal will help Palm to gain market share in Europe
• Push e-mail technology may soon become available to Palm (too bad Nokia just snatched away Intellisync)
• Palm has a promising product pipeline (some more insight please? Few details are known)
• Next-gen Treo "Hollywood" to be introduced in May 2006 (now, that's valuable insight!)
• Analysts are wrong, because of: incorrect estimates on Treo sales, wrong margin estimates

[cervezas]

These guys aren't just analysts. They run a hedge fund that has just become the 3rd largest shareholder in PALM. So take that bias into consideration when you try to read what they are saying. I do think that the basic outline of the device releases they describe is probably accurate since it's corroborated by a recent Forbes article and not something they would have a strong interest in distorting to generate positive buzz. Forbes actually seemed a little concerned from a share value standpoint that Palm was going to release so many phones so close together. http://www.forbes.com/markets/econom...markets03.html

One thing that's a concern is that while they obviously believe PALM is a great value they also seem to be a lot more preoccupied by its cash hoard, real estate holdings, and warranty commitments that its mobile computing vision. They make a lot of complaints about Palm's management and state that if the complaints aren't addressed promptly the Board of Directors should consider selling the company. It all kind of sounds like they are agitating for a buyout--the kind that is good for shareholders in the short-run but guts the company in the end. Hoping this isn't the case, or at least that they don't convince other shareholders to go down that path.

[Colin Dunstan]

Some people claim hedge funds are agents of redemption and ruin... Let's hope Palm doesn't become the playball of the finance community ;(