Summary
The change of ruling from FASB that allows technology companies to record revenue earlier eliminates the remaining near term uncertainty about Palm.
Analysis
Only day after I published my previous analysis, Palm stock price shot up by $2 and then another $1 the following day. It appeared the market voted clear and loud that Palm was ready for its next boom. One more piece of recent news adds to eliminate the uncertainty that I have pointed out last time. FASB, the U.S. accounting rulemaker, agreed to let companies record revenue earlier from products that combine software and hardware, such as Apple’s iPhone and Palm’s Pre. This is positive news not only to investors, who don’t have to guess the percentage of deferred revenue, but also to the development teams of these technology companies. There are countless examples that software features were not released early and have to wait for the next product cycle because of deferred revenue recognition. Under the original accounting rule, if a company did not defer a portion of the revenue to account for a new feature after the product is sold, the feature has to be independently charged, or has to wait for the next product cycle. With this rule eliminated, Palm has virtually no near term uncertainty other than execution.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
