For Palm (PALM), it might be time for drastic action.

On Thursday afternoon, Palm will report results for the February quarter. The company previously preannounced that revenue will be in the $300 million to $320 million range, and added that cash exiting the quarter was above $500 million. Morgan Stanley analyst Ehud Gelblum asserted in a research note today that the Street will likely be focused on three issues when the company issues the actual numbers:

• Unit sell-through.
• May quarter cash burn.
• Whether Verizon Wireless will boost marketing for Pre Plus and Pixi Plus.

Gelblum thinks February quarter sell through was just 500,000-600,000 units, and that channel inventory may have increased to “an alarming” 850,000-950,000. Ergo, he is modeling May quarter sales of just 575,000 units, with sales of $205 million, both down 34% from his February forecasts. And he thinks the company will burn another $94 million in cash in the quarter.

The analysts thinks the company has three options to save itself before running out of cash:

• Palm “spends like crazy” to drive sell through,” and cash drops to $170 million by the end of the November quarter. He says this is the high risk/high reward scenario.
• Palm decides to “stay the course and ramp op ex to drive sales,” with cash exiting November at $292 million.
• License the OS: This is the most intriguing idea. Palm stops manufacturing altogether, and adopts a license model for smart phones and other devices for WebOS. If the company licensed the software for $7 per unit, and the OS won 5%-7% of the smartphone market in FY 2013, he calculates the company earn 40-50 cents a share that year. Lots of ifs in that calculation; would hardware makers adopt it over Android and the new version of Windows?

PALM today is up 6 cents, or 1.1%, to $5.59.

Article courtesy of BARRONS.com: Tech Trader Daily