Through The Fly's Eyes: Palm

from Theflyonthewall.com










Guidance Weak; Cash Generation Nice

Palm (PALM) reported better EPS numbers last night, but the smartphone maker is still having a tough time getting its groove thing back, meaning no revenue growth.

Is Palm a valuation trap or not? Palm has over $500 million in cash, no debt and has a market capitalization of $1.7 billion. That is a pretty cheap company. However, will it be able to grow revenue?

From listening to both Motorola and Palm's conference calls, some interesting comments were made by the respective management teams that point to the need for both companies to do some merging and acquiring.

It became apparent that Motorola is having a lot of difficulty getting a market presence with it's Q product. Weak product acceptance led to Motorola dropping prices for its smartphone offering. Also, it appeared a non-CDMA Q smartphone is not ready to come to market.

Treo, conversely, is a high-priced, high-end product which could generate some nice margins. In addition, for much of the past year, Palm has been working out the kinks for its Treo devices so that it works on wireless networks around the world. Also, Treo showed some good unit volume growth, selling 738,000 units, up 30% year over year. Those are some serious numbers.

Palm is worth a trade. Smartphones are the future and Treo is a good product. A $2.0 billion price tag, or net of cash is $1.5 billion, brings you to about $20 a share. That's doable.