Analysts question Palm's survival

Palm got a 29.16 percent beating to $4.00 on the stock market today, as worse then expected financial results have raised big concerns regarding the survival prospects of the smartphone maker.

The company managed to cut its fiscal third quarter loss to $22 million, compared with a loss of $98 million, for the same period the previous year, while sales rose from $90.6 million to $349.9 million. Excluding special items, the company's loss was 61 cents per share, and this is much bigger than analyst's consensus of 42 cents per share.

The bad news doesn't stop there, the real bombshell was the news that a major inventory build-up occurred due to disappointing sales of the company's smartphones. Wall Street analysts were counting on a fourth quarter revenue of over $300 million, while Palm forecasts a revenue of less than $150 million.

Analysts now estimate the company will burn through all its money over the next 12 months, some remain optimistic about the company's future, but banking firms like Canaccord Adams and Morgan Joseph no longer see any value in Palm and cut their price targets to $0.

Morgan Joseph, in a note subtitled “The Death Spiral is Accelerating”: ”We believe that Palm is likely to burn through all of its cash by mid-[calendar year] 2011 given our estimates, and we do not expect Palm to be able to raise additional funds given our outlook and its cash raise, which closed at $16.25 per share on September 28, 2009. With shares currently trading at 1.6x our new 2011E EV/Sales, we believe the stock is overvalued. As such, we are lowering our rating of Palm shares to SELL from Hold, with a $0 price target.”

Sources: WSJ, Reuters and Yahoo