Palm, and Elevation, Seeking Higher Ground

Sam Gustin writes: How long before Elevation Partners seeks higher ground?

Palm's market cap now stands at slightly over $200 million after the company's stock plunged 10 percent following an ominous earnings warning Monday after the stock market closed.

So it's worth asking, does Palm's largest single shareholder, Elevation Partners, which acquired a 25 percent in the company for $325 million in 2007, really stand behind its recent expression of support for the company, or is the private equity firm, which takes its name from a song by one of its partners, U2's Bono, ready to pull the plug?

That's the question tech watchers are asking after the struggling smart phone manufacturer said it would severely miss Wall Street revenue expectations, cut its workforce, and consolidate its operations.

As recently as last week, Elevation expressed its support for -- and optimism about -- Palm.

"Elevation Partners is very pleased with the progress Ed Colligan, Jon Rubinstein and the entire Palm team are making," Elevation co-founder Roger McNamee said in a statement, adding, "We have a very long-term investment horizon and have no plans to exit our investment in Palm."

Given that the Palm's total market cap is now worth less than Elevation's 25 percent investment, there are only two reasonable postures for Elevation to take. Stiff-upper-lipped support, or abandonment, which could spell the end of Palm as a company. For now, Elevation has chosen the former. But for how long?

Palm said late Monday that it expects to report revenue of $190 million to $195 million for the past quarter, far below analyst expectations of $331 million. Palm shares fell over 10 percent in after-hours trading to $1.69. As recently as September, Palm shares were trading at over $8 per share. The company will officially offer its earnings report on December 18th.

The company blamed its woes on the impact of the global economic slowdown on consumer electronics spending.

"We are seeing unprecedented dynamics in the global markets as economic uncertainty hampers demand for consumer products," said Ed Colligan, Palm's chief executive, in a statement.

But clearly, the company's problems go far deeper than the macroeconomic environment.

Palm has been struggling for some time, but in the last year has been swamped by Apple's wildly-successful iPhone as well as continued competition from Blackberry-maker Research In Motion.

The clock is ticking for Palm, and as the company flounders, it may be only a matter of time before Elevation Partners seeks higher ground.