Analyst: Palm’s unsold inventory exceeds 1 million [Corrected]

Update: I misread some other coverage on Palm’s excess inventory, and need to clarify that Palm has not frozen production of its phones. Apologies for the error, original story below.

With almost half a year’s stock of phones unsold, Palm is putting production on hold (see correction above) until it can sell off its current inventory.

Morgan Stanley analyst Ehud Geldblum estimates that Palm has 1.15 million phones sitting in warehouses or retail venues, a figure he called “alarming” according to Business Insider. Palm itself confirmed that it sold a mere 408,000 phones out of the 960,000 that shipped last quarter. Given Geldblum’s estimates, it’s obvious that Palm’s unsold inventory has been collecting for some time.

For context, consider that Apple is expected to sell 7.5 million iPhones this quarter, and Google chief executive Eric Schmidt claims that roughly 60,000 Android phones ship every day, which means it would take less than a month for Android phones to match Palm’s unsold inventory.

Analyst: Palm's unsold inventory exceeds 1 million [Corrected]

The funny thing is that Palm’s WebOS-based phones, the Pre and the Pixi aren’t bad. The reviews I’ve seen praised the operating system in particular, even if the hardware felt a bit flimsy and battery life was on the weak side. But the phone hasn’t been aggressively marketed like the iPhone or the Droid, nor does it have the brand recognition of a Blackberry.

It even seemed like WebOS was getting a second wind earlier this year. Verizon picked up enhanced versions of both phones, the Palm Plus and Pixi Plus, both equipped with the ability to become 3G hotspots, and with faster processors for even better multitasking. Palm also opened up WebOS app development to third-party developers, with the goal of increasing the size of the WebOS’ App Catalog.

Those efforts might’ve come too late after the original Pre’s June 2009 debut, and analysts are predicting the worst. Peter Misek of Canaccord Adams devalued Palm’s stock price target to $0, saying that the company’s troubles “will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support.”

Given Palm’s massive unsold inventory, I would say that you can expect some price cuts, but prices are already rock bottom on Amazon for the Pre Plus ($30) and Pixi Plus (1 cent) with two year contracts. The same price cuts recently went into effect at Wal-Mart as well, maybe because of the poor sales. At the very least, Palm and its carriers need to get real and stop selling the Pre and Pixi for their $150 and $100, respectively, because it’s not working.