Palm Confident About Pre Phone

Smart phone maker Palm is doubling down on its new Pre phone by saying it plans to raise $83.9 million with a new stock offering to bolster the product's launch.

Palm said Monday it boosted a previously announced public offering to 23.125 million shares, from 18.5 million, and priced the stock at $6.00. The company's stock opened at $6.50 Tuesday and recently traded at $6.85, up 83 cents, or 13.8%.

Analysts have questioned whether the Sunnyvale, Calif.-based company's cash flow could sustain the rollout effort for the widely anticipated Palm Pre, a new smart phone set to launch in the first half of the year. Shrinking demand for Palm's older models has battered the company's sales.

Matthew Thornton, an analyst with Avian Securities in Boston, said Palm exercised a clause that forced its largest shareholder, hedge fund Elevation Partners, to remarket the 49.0% of stock it already owned.

Elevation, which bought shares at $3.25, will end up getting $49.0 million back. According to Thornton, it has already reinvested that money in more Palm shares -- a vote of confidence for the future of Palm. Elevation now owns a 33.0% stake in Palm.

Elevation Partners also has an investment in Forbes.

Palm has been navigating troubled waters of late. The smart phone maker last week warned investors that its sales for its fiscal third quarter fell more than 70.0%, based on preliminary estimates. The company blamed falling demand for its older phones, the weak global economy and late shipments of its Treo phone. (See "Palm Slapped By Dwindling Sales.")

Palm also said its next quarter will be tough, as sales of existing products continue to fall and profit margins thin.