Palm’s webOS Platform Advantage?

Palm Inc. (PALM) plans to launch a webOS developer program in December this year. Building software for Palm's Linux-based mobile platform, this new app program will help third-party open source developers to provide their own software applications directly via the Web. 

For the closed-source application, Palm will charge a $99 annual upfront fee from developers with a $50 fee for each application on its App Catalog for the Pre and Pixi smartphones. But the fee is waived for the open-source applications for the webOS. 

Palm also opened its new App Catalog e-commerce beta program that has the opportunity for developers to make their Palm webOS applications available to consumers either for a fee or gratis. 

The developer program includes a 70/30 gross revenue split (Palm will receive 30% while the developers will receive 70%) generated through application sales (after applicable taxes). Dion Almaer and Ben Galbraith from Mozilla Labs were hired by Palm to lead the open source developer program. 

If Palm can increase its market share in the webOS platform both domestically and internationally through increased carrier interest in the webOS platform, we believe the company can be a strong challenger in the smartphone market. 

Moreover, Palm expects to launch subsequent webOS devices over the long term, which bodes well for the company’s future growth. We view this move to be very positive for Palm and help it to advance in the webOS third-party software platform. 

However, Palm is well behind the Apple (AAPL - Analyst Report) iTunes App Store, Google’s (GOOG - Analyst Report) Android, Microsoft's (MSFT - Analyst Report) Windows Mobile store, Nokia’s (NOK - Analyst Report) Ovi store and Research In Motion’s (RIMM - Analyst Report) BlackBerry. Moreover, Apple restricted iTune access to Palm Pre owners who could not use Apple's iTunes to sync their smartphones to their Macs or PCs. Palm wanted Pre to act much like an iPhone or iPod. 

Palm’s first quarter results beat the Zacks Consensus Estimate as the company’s shipment of the new Pre device was better than expected. However, despite the launch of new products such as Pixi and new App Catalog in the coming holiday season, Palm’s second quarter revenue guidance was of a sequential decline, which is not a good sign. 

Palm had launched its Palm Pre and Palm Pixi devices running on the webOS software platform to positive reviews, but doubt about its demand and carrier interest in the next six-month time frame lingers on. Moreover, it is still too early to tell whether the new App Catalog will be as successful as the Apple’s iTunes App Store. 

Thus we remain on the sidelines and maintain our Underperform rating on the stock.

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