Palm Joins Forces With AT&T, But Is It Enough?

AT&T has agreed to carry both the Palm Pre and Palm Pixi and offer its 3G network service for Palm's newest smartphones. The deal now brings the Pre and Pixi models to all three major wireless carriers (Palm had existing agreements with Verizon and Sprint).

However, AT&T may not be enough to save Palm. Palm shares crashed after the mobile device maker released a shockingly disappointing sales forecast last week. The company announced its third quarter fiscal 2010 earnings last Thursday, including $349.9 million in revenue, which was higher than the company's previous forecast of $285 million to $310 million. While the most recent quarter's sales were better than expected, Palm quickly negated any positive vibes by stating that its fourth quarter sales forecast would be less than $150 million, which is far worse than the Wall Street consensus estimate of $305 million.

In addition, Palm reported that it shipped nearly 1 million smartphones for the third quarter, but sold just 408,000 devices during the period, which represents nearly a 30 percent decline from the previous quarter. As a result, Palm's stock price fell more than 29 percent last Friday and closed at $4 a share, and today reports have surfaced that Palm may halt production of the Pre until the unsold inventory is moved.

The fact that the disappointing Q4 forecast comes on the heels of Palm's newest smartphone releases only makes matters worse. Both the Pre and Palm have earned strong reviews and positive press coverage (for more, read CRT Test Center's review of the Palm Pre Plus). The Palm Pre in particular enjoyed a strong debut at the 2009 Consumer Electronics Show, while the Palm Pixi, a lighter and slimmer version of the Pre, also won praise.

But the launch of two well-reviewed smartphones hasn't been enough to stave off declining sales amid an increasingly competitive and crowded market. Ironically, Palm's agreement with AT&T may be overshadowed by news that Dell is also joining AT&T for its first smartphone, dubbed the Aero. Thus, the Pre and Pixi will be competing with Apple's iPhone, Google's Nexus One and now Dell's Aero for AT&T customers.

It wasn't that long ago that Palm was dominating the burgeoning personal digital assistant market; in fact, the Palm Pilot was synonymous with the PDA. But as the PDA market began to vanish, so too did Palm's sales. In a depressed economy and facing overwhelming odds in the smartphone market, many speculate that Palm's only means of a survival is an acquisition by a larger mobile device maker such as Nokia.