When it rains, it pours. Just ask Palm and the veritable deluge of bad financial juju that they’ve been hit recently. Following on news of Palm’s adjusted financial guidance, which itself rode in on the back of its stock getting downgraded to an “underperform” rating, Palm’s CEO Jon Rubinstein issued a letter to Palm employees, explaining the reasons why Palm’s financial performance has gone done the proverbial drain, and how Project JumpStart and Palm Brand Ambassadors are fighting to boost sales of the Verizon Palm Pre Plus and Palm Pixi Plus (the two PPP’s, as it were).
To recap, Palm had initially expected to rake in a healthy $1.6-1.8 billion in the third quarter of 2010. Then, Palm’s stock was downgraded to an “underperform” rating by Merrill Lynch, citing weak consumer demand and lackluster carrier support. As if that weren’t enough, Palm just yesterday adjusted its Q3 2010 financial forecast to $285-$310 million. That brings us to today.
Palm’s Rubinstein spoke with the Wall Street Journal about Palm’s finances. According to the Palm CEO, the Palm Pre maker will report revenues between $300 and $320. The reason? Lower than expected consumer demand for webOS smartphones has apparently prompted US carriers to put additional handset orders on ice as they push to move existing inventory. Still, Rubinstein explains that Palm isn’t down and out just yet.
In an effort to boost brand awareness and consumer interest, Palm kicked off Project JumpStart about three weeks ago as a grass-roots marketing effort that relies on Palm Brand Ambassadors to train Verizon sales reps to push the webOS on consumers looking to pick up a new Palm Pre Plus or Palm Pixi Plus on Verizon Wireless. The marketing initiative is also looking to capture mindshare by increasing Palm’s ads on billboards, bus shelters, buses and subway stations.
So far, Project JumpStart is said to be improving consumer awareness – and, more importantly, sales – of webOS smarpthones on a weekly basis. That’s good news for a company that started off with strong Palm Pre sales, only to end up with a sorely depressed bottom line.
It’s not clear if the Project JumpStart marketing initiative will be enough to keep Palm from draining its cash reserves before someone else comes in to buy Palm and the rights to the webOS. As it stands, Palm is expecting to come out of Q3 2010 with $500 million cash on hand. Let’s see how the AT&T Palm Pre helps the company’s revenues.
Full letter from Jon Rubinstein after the break.
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.