Palm Earnings: Future Bleak, the CEO Should Go

Handset manufacturer Palm (PALM) released its third quarter earnings yesterday, and the picture for the company remains bleak. That's after a likely one-time boost from adopting the same accounting rules changes that helped Apple (AAPL) see a particularly spectacular last quarter. Palm's projected revenue for next quarter -- undoubtedly under-estimated to try and artificially surpass analyst estimates -- is pitiful. Palm is a horse with a broken leg that, sadly, should be put out of its misery. At the very least, CEO Jon Rubinstein should leave the company.

Let's go through some of the lowlights:

• Quarterly revenue was about $350 million. That's far better than the sub-$91 million in 2009, but poor given that the company introduced what were to be its savior products since then.
• Revenue was higher than the company's recent guidance of $285 million to $310 million, but Palm was probably trying to paint a more dismal picture so actual results would look better in comparison
• Net loss was $18.5 million, but over $22 million was attributable to investors with common stock because of protection for convertible preferred stock.
• These results are after adopting the new accounting rules that let certain companies accelerate revenue recognition. One reason for Apple's bang-up last quarter was the accounting rules change. All it did for Palm was to keep things from looking even more dismal.
• Cash, cash equivalents, and short-term investments added up to almost $592 million -- far ahead of $500 million as the company said last month. But cash and cash equivalents alone -- the measuring stick used for other tech companies -- were $376 million after a net cash flow loss of $18.5 million.

Palm said next quarter's revenue would be less than $150 million. Yup, less than half of this quarter's. Expect the cash burn to accelerate and the company's potential life span to shrink accordingly. And what does Palm's management say?:

"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."

WebOS was supposed to be a silver bullet, but it isn't, because consumers simply don't want to buy Palm's products. Sales are going down the tube, and so is the company. At least Rubinstein admitted during the earnings call that "execution missteps" have hurt. The next step? Recognize that "execution missteps" is a perfect summary of Rubinstein's tenure. Time to go, Jon, and let's hope that a replacement might be able to save the company. Or at least find a willing buyer.

Photo: Palm.