Palm Pitched Itself to Huawei. Good Thing Huawei Waited

Palm Pre smartphone
Palm Pre smartphone

Palm seems to have had the good sense to shop itself around a month prior to reporting its devastating third-quarter earnings. And in its viewfinder for potential buyers was Chinese telecom Huawei Technologies, according to a Reuters report Tuesday.

Investment bankers for the struggling smartphone maker approached Huawei around mid-February, wanting to engage in preliminary acquisition discussions, according to the report, which adds that those talks haven't advanced further. Shares of Palm (PALM) dropped as much as as 11.9% in early-morning trading to $5.32 a share.

For Huawei, waiting might be a good thing. In late February, Palm issued a preliminary warning that its future outlook wasn't shaping up as planned. The company had cited slower-than-expected consumer adoption of its shiny new Pre and Pixi smartphones and that orders from its carrier customers were down and being deferred.

"It's Pretty Bad"

"When Palm pre-announced before the quarter ended, they said revenues would be down, but they didn't say anything about the magnitude. We all know now about the magnitude, and it's pretty bad," says Peter Misek, an analyst with Canaccord Adams.

At the time of its warning, Palm said it expected fiscal 2010 revenues to be well below its previously forecast range of $1.6 billion to $1.8 billion. The company revised that figure several weeks later to less than $1.18 billion when it reported its third-quarter earnings.

Huawei would have been able to get a sneak peak at the financials prior to the third-quarter report if talks had advanced to the point where Palm would share nonpublic information, but the Chinese company may not have received the benefit of seeing Palm's share price crater before the parties explored the price of a deal.