The name of Palm has been frequent in business news of late.  Our last Supply Chain Matters commentary regarding Palm was at the time of the long-awaited big-bet announcement of the Pre smartphone in June of 2009, complete with a new webOS operating system.  It was deemed the best potential competitive offering to the Apple iPhone.  We noted the importance of Palm’s supply chain capabilities to be able to ramp-up to support a goal to have one million units shipped by the second half of 2009. Palm had brought in an entirely new leadership team with both Apple and mobile device manufacturing experience and the hope was that this experience would translate to brighter fortunes.

A short ten months later presents a far different picture. In March, Palm indicated that it had shipped 960,000 phones for the fiscal third quarter that ended February 26th, an almost 300 percent increase from the year earlier.  Unfortunately, only 408,000 of these phones were actually sold, leaving the company with a sizeable inventory overhang.  Palm’s CEO noted in the Q3-2010 earning press release: “Our recent underperformance has been very disappointing, but the potential for Palm remains strong.” Now, several weeks later, the company is fielding acquisition offers.  On the GigaOM network featured by Bloomberg Businessweek, Kevin Tofel notes how Palm slipped in marketing and advertising strategies related to the Palm Pre. “instead of marketing Pre smartphones as high-value handsets, the (Palm’s) carriers are holding fire sales to rid themselves of excess inventory.”

Optimism apparently has its limits when your products lack traction in the market.

On April 12th, news spread among the Silicon Valley crowd that Palm was quietly putting out feelers for a buyer.  Initial speculation as to potential buyers looked to the Pacific Rim, as well as RIM, the company.  Speculation ran high that Taiwan’s HTC, a high volume mobile phone producer, and best known lately for its Android phones, might be the best buyer for Palm. HTC’s production and supply chain scale, coupled with the Palm brand, could add a stronger competitive dimension.  Another speculated buyer was China’s Lenovo, which of late has been moving toward broader diversification in its product offerings beyond laptops and PC’s. As I pen this posting, a Reuters news story indicates that HTC has dropped out of the bidding and Lenovo is now emerging as the leading candidate to buy Palm.  Other potential acquirers are noted to be Chinese telecom companies Huawei Technologies or ZTE, but they may face intensified governmental scrutiny.

Palm faced many insurmountable obstacles in its quest to be the potential iPhone alternative.  We can all speculate as to which of these obstacles turned out to be the Achilles heel.  It could be the initial choice of carrier distribution and channel partners, difficulties in initially scaling-up production capabilities, or the fact that Apple’s momentum in the market is insurmountable at this point. 

In my view, two conclusions are obvious regarding the current state of Palm. First, in spite of its current independent focused bravado, Palm can no longer remain an independent company.  There is also a strong likelihood that a current U.S. multinational brand will be assumed by some Asian acquirer, and timing could not be more ideal. Second, as we often point out, end-to-end supply chain capability must always be aligned to the needs of the overall business.  In the case of Palm, supply chain ramp-up was not aligned to sales and marketing execution.

What is your view?  Where did Palm’s supply chain strategy falter?  Which company will benefit most from acquiring Palm and which is the most likely to actually pull-off an acquisition of Palm?

 Bob Ferrari