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Should You Buy PALM?

03/02/10 01:27:02 PM
by Koos van der Merwe

Palm needs to make changes to its business plans - or find a buyer.

Security:   PALM
Position:   Buy

Slow adoption of Palm's (PALM) products and its reduced revenue forecast suggest it may need to make major changes to its business plan or find a buyer.
The reduced revenue guidance for Palm's current business year, announced Thursday, February 25, 2010, is suggesting to industry observers that the company will either have to make major alterations to its business plan or find a buyer. The slower-than-expected consumer adoption of the company's products — which pushed Palm's annual projections well below its earlier forecast of $1.6 billion to $1.8 billion — was no big surprise to industry observers.

"Having an excellent product is not the guaranteed formula for attaining marketplace success," noted IDC Research Manager Francisco Jeronimo. The Palm Pre's user interface, form factor, services, and pricing offer nothing superior to what stronger smartphone brands such as Apple and RIM already offer. The feeling in the market is that if Palm's technology was backed by a well-known brand with global distribution channels, it would doubtlessly be doing far better.

Potential buyers include Canada-based BlackBerry maker RIM, Dell, and even Nokia, which currently has a big hole at the high end of its smartphone portfolio.

Graphic provided by: OmniTrader.
Figure 1 is a daily chart and the vote line is suggesting a buy signal. This is because the moving average convergence/divergence (MACD) volume Indicator has given a divergence buy signal, not yet confirmed by the stochastic relative strength index (RSI) cycle 8 period indicator, but very close to it. The share price broke through the support trendline, testing the $6.07 level. This could be an overreaction and the price could rise above the trendline and use it as a support level. On Friday, February 26, the share trading at $6.23 reached a high of $6.59.

Palm could be a speculative buy for a long-term hold as the market recovers at present levels. Whether or not the company becomes a takeover target, speculation alone and management decisions to improve business as well as a recovering economy should see its price improve.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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