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Palm could be knocked out by Apple's iPhone

Posted by: Aaron Pressman on January 9, 2007

Perpetually troubled Palm Inc., Treo-maker extraordinaire, always seemed to have one foot in the grave. A Palm (Symbol: PALM) obituary seemed all but inevitable with Microsoft cast as the villain for flooding the market with its decidedly inferior PDA and Treo knock-offs. But, surprise, surprise, it’s Apple CEO Steve Jobs who is going to bury the once market-leading, always innovative gadget maker.

Apple’s (AAPL) masterful CEO introduced some pretty interesting products just now, including the iPhone, a combo iPod, mobile phone and PDA. Looks pretty sharp though priced at $499 or $599 with a 2-year cellular contract, it’s also pretty spendy. Jobs says Apple aims to sell 10 million. For more details, see our “Byte of the Apple” blog. The prospect of some $5 billion or more of new revenue got investors excited, too. Shares of Apple, already up about 20% over the past two months in anticipation of some new products, jumped 7% as Jobs unveiled his iPhone.

The snazzy new goodie seems unlikely to dent the market share of major phone makers like Nokia (NOK) or Motorola (MOT) and their shares have moved down just a little today. But there’s one company that immediately looks like a shell of its former self: Palm (PALM). Shares of the maker of the Treo smart phone dropped more than 5% after the iPhone was intro-ed. That ended some nice momentum Palm picked up as its latest but delayed Treo, the 750, finally went on sale.

The damage to Palm’s prospects is likely a lot more serious because it lacks the scale and volume to withstand many customer defections. The company sells only a million or so handhelds and phones a quarter, meaning Apple could be in position to grab a huge chunk of its customers. In its most recent quarter (closed November 30) smart phones brought in $283 million of revenue, a 5% gain from a year earlier and making up 72% of all sales for the quarter. At the same time, revenue from (phone-less) handhelds is plummeting, falling 37% to $110 million in Nov. 30 quarter. The company doesn’t break out unit sales b y product line but said it sold 1.2 million units total in the quarter. Jobs & Company could easily grab a third or more of that business.

Ever since Bill Gates set his sights on crushing that first wonderful Palm Pilot, I’ve been expecting to write about Palm’s demise. But who would have thought it would be Steve Jobs’ Apple that landed the knock-out blow?

Reader Comments

Lucia Baker

January 24, 2007 9:25 AM

Yes, Steve Job has come back with a vengenance with the tunes-playing, web-surfing iPhone that is five years ahead of the competition. However, the Apple's smart phone faces many challenges. First, the phone is starting at a whopping $499, especially for the teens and tweens who helped popularize its cousin, the iPod. Then there's the touch screen design, which makes the device susceptible to scratches. What's more, we will have to learn to work with service and application partners to give consumers all they want on the phone, now that the company is in the cellular business.

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Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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