Dark Portents for Palm and Pre

If what two market analysts are reporting today is true, Palm might have to return to the equity markets for financial sustenance earlier than it had hoped.

The analyst reports suggest the Pre could fall woefully short of the much-hypted, sky-high expectations that greeted its debut earlier this year.

First, Morgan Joseph analyst Ilya Grozovsky downgraded Palm from “hold” to the dreaded “sell” recommendation. He sharply lowered his price target for the stock, too.

As reported by Eric Savitz at Tech Trader Daily:

Grozovsky writes in a research note that his checks find Pre sales in July were down to about 100,000 units, from 200,000 in June – and that August is tracking to be even lower than July. He cut his estimate on Pre untis for the August quarter to 350,000 from 400,000, which already was low relative to Street expectations. He also contends that non-Pre shipments in the quarter were lower than expected due to cannibalization by the Pre.

The analyst reduced his forecast on sales for the May 2010 fiscal year to $580 million, from $920.5 million; his EPS forecast drops to a loss of 91 cents, from a loss of 56 cents. For FY 2011, he now sees revenue of $630 million, down from $860.8 million, with a loss of 92 cents a share, from a loss of 68 cents.

As Palm lurches toward the holiday season with excess inventory, Grozovsky foresees price cuts on the horizon. If his sales checks are accurate, that’s a reasonable assumption to make.

After that figurative poke in the eye from Grozovsky, Palm might have been forgiven for seeking comfort elsewhere. It didn’t receive any from Collins Stewart analyst Ashok Kumar, who proceeded to give it another drubbing.

In a separate news item from Mr. Savitz at Tech Trader Daily, Kumar is reported to have noted that the Pre, despite being positioned as a flagship product at Sprint, did not ship in expectedly high volumes in May and June.

Moreover, Kumar says that the Pre’s market “momentum appears to have peaked,” with “weakening demand” resulting in a 500,000-unit cut in production for the remainder of the year.

Savitz notes that Kumar doesn’t say how, or on what basis, he tabulated that estimate. A healthy dose of skepticism is always good policy, of course, but Palm has not been on a roll lately.

Its marketing campaign included execrable television commercials, and the company has had its knuckles rapped by more than a few commentators and critics this week for privacy transgressions relating to location-based information the Pre surreptitiously sends back to Palm headquarters.

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