Palm: the tech stock they love to hate

November 28, 2007, 8:28 PM UTC
Palm Centro. Image: Palm

Tech stocks generally have had a good year, and anyone shorting them had better have intestinal fortitude. But at the moment, there might be no tech stock short sellers are betting against more fervently than Palm (PALM).

Centro smartphone: Palm goes small (Photos 1-5)

In Palm’s case, you can’t exactly blame the short sellers. Palm’s Treo has lost its position as the top next-generation smartphone to Research in Motion’s (RIMM) BlackBerry, and its reputation for simplicity and innovation has been overshadowed by Apple’s (AAPL) iPhone.

It’s not clear how the company plans to return to greatness. Management unveiled plans for a laptop-like device called the Foleo earlier this year, only to pull the plug on the eve of its launch. And Palm’s next-generation Linux-based operating system has yet to appear, even as Microsoft continues improving Windows Mobile, Apple’s OS X gains ground through the iPhone, and Google’s (GOOG) Android operating system courts the same open-source developer community Palm would want to attract.

Even so, the sheer scale of the anti-Palm short selling is staggering. There are nearly 105 million shares of Palm outstanding, according to the company’s most recent report. And Nasdaq says about 35 million were held by short sellers as of November 15, about 10 times the average volume of Palm shares traded each day. The short position is more than three times higher than the Nasdaq average.

Game-Changing Cell Phones: Photos (1/7)

All that negativity seems like a bit much, given the things Palm still has going for it. Though the company has fallen on hard times, CEO Ed Colligan is a smart guy who has been through trials before. And now the company has the benefit of input from Apple engineering veteran Jon Rubenstein and financial guru Fred Anderson, who know a thing or two about turnarounds. Who knows? Palm might decide to embrace Google’s Android OS and focus its software development talents on applications instead; a move like that could revitalize the company.

“You can understand the short positions,” said Richard Doherty, director of the Envisioneering Group, a technology consulting firm, noting that Palm’s series of missteps have killed its buzz. “But there’s a show on Broadway, Monty Python – ‘I’m Not Dead Yet’ is the song. I’m not writing them off yet.”

Clearly, there are dangers in betting against Palm. Today’s market action offers one small example: The stock is up 7 percent in mid-day trading, and part of that is surely due to short sellers who have to cover their money-losing bets against the company. For today at least, the Palm haters are, well, taking it in the shorts.