Palm Thursday: No Deal Yet

Market expectations of a quick sale of Palm Inc. faded today and the mood quickly shifted. Thursday night, Motorola Inc. (NYSE: MOT) -- considered by some to be a front-runner for the PDA pioneer -- warned that handset woes will continue to pull down its earnings. This evening, Palm released numbers that missed analyst estimates.

Several sources, however, continue to say Palm's banker Morgan Stanley is trying to seal a deal, whether it be a private equity buyout or a vendor buyout. Others are now naturally more cynical about a sell-off of the Treo-maker. (See Palm Deal in the Final Stretch, Palm's in Play , and Palm Action Heats Up .)

"Something is in the works, it is just a matter of time," says one Wall Street source, citing information from advisory sources and shareholders. Motorola and Nokia Corp. (NYSE: NOK), along with private equity firms Silver Lake Partners and TPG Inc. have all been named as possible buyers. Another source says that Dell Inc. (Nasdaq: DELL) is now creeping more aggressively into the picture.

"If it doesn't happen today, it will happen soon," agrees Carmi Levy, analyst at Info-Tech Research Group . "Palm just can't go it alone anymore."

Palm's CEO, Ed Colligan refused to comment on the takeover talk on the company's earnings call Thursday afternoon, as he was pressed with aggressive questions on the topic. "It’s our practice not to comment on rumor and speculation," he said. "We're 100 percent focused on running the business."

Yup, heard that one before.

The Wall Street source named Nokia as the vendor that would pay the most for Palm. A private equity source, however, tells Unstrung he heard that a Palm deal was "nipped in the bud" by Nokia's head of multimedia, Anssi Vanjoki, who is tipped to be the company's next CEO by some observers.

Nokia has so far refused to comment on what it describes as "rumor and speculation."

The Finish phone giant, however, isn't the only vendor looking at Palm's prospects. Dell has been snooping around, a couple of separate sources tell Unstrung.

Dell also said that it wouldn't comment on "rumor and speculation."

Motorola avoided the question of whether it was talking to Palm on a Wednesday conference call. The company's CEO Ed Zander was directly asked about Palm but didn't answer, referencing instead a "family matter" that will prevent him from attending his scheduled CTIA keynote. Analysts and sources, however, cautioned against reading too much into Motorola's silence.

"My sense is that it will still be a private equity buyout," says the Wall Street source, noting that this is management's preferred option allowing them to keep control. It would, however, likely net a lower valuation than a vendor buyout; with other sources questioning if a PE firm would buy into a single technology company such as Palm.

If Morgan Stanley cannot secure a deal for Palm, Info-Tech's Levy reckons that the gadget maker's prospects will get worse in a market plagued by decreasing margins and dominated by larger competitors, such as Motorola, Nokia, and Research In Motion Ltd. (RIM) (Nasdaq: RIMM; Toronto: RIM). "It would be better for everyone if Palm was bought as a going concern," he says.

"Otherwise, their option is to break up the company and shop the technology, selling the individual parts, which is not optimal for the Palm community."

Palm reported its third quarter results for its 2007 fiscal year after the bell on Thursday. The Sunnyvale, Calif.-based company reported earnings of $11.8 million, or 11 cents per share, compared to earnings of $29.9 million, or 28 cents a share, for the same period last year. Excluding certain costs such as stock-based compensation and development charges, the company earned 16 cents per share, short of the expected profit of 12 cents per share, according to Reuters.

The results from the previous year included a a tax-related gain. Revenue grew more than 5 percent to $410.5 million for the period. The firm said that its Treo smartphone revenue went up 25 percent for the quarter, compared to the previous year.

— Dan Jones, Site Editor, Unstrung