You see, Palm (PALM) defines units sold as products sold to on-the-street customers or to resellers like Best Buy (BBY) and Amazon.com (AMZN). Which means that Palm can report a unit sold while it’s still sitting at inventory at various retail outlets. In other words, a Pre sold is not necessarily a Pre activated. As Eller notes, that’s problematic.

“We have been perplexed by a disconnect between PALM’s device units sold and our estimates of store level sell through,” Eller writes. “According to PALM’s reported sell through, inventory increased by 13k units and since the ‘vast majority’ of both the device units shipped and the device units sold were units of the Pre, there couldn’t be an inventory problem. The gap between the two is only 13k.”

Continuing, Eller adds a cautionary note: “However, since the company recognizes revenue on sell in to the channel and the company defines device units sold as units that have been shipped from Sprint (their primary customer) to either customers or second tier distributors, PALM could offer investors a high number of units shipped but still have a glut of inventory in the channel. We believe that channel inventory is currently about 11 weeks, which we believe will pressure reorder rates and make it more difficult to sell high ASP products going forward.”

An 11-week glut of inventory in the channel? If that’s the case, it’s certainly cause for concern, more so because many investors are evidently unaware that this is even a possibility. “[Palm’s definition of sold] does not appear to be understood by investors,” Eller notes. “We polled several of the investors who attended the Boston road show lunch and each was under the impression that sell through translated into customer activations. How can this be?”

Good question. Palm and Sprint (S) investors both might want to pay a bit more attention to Sprint’s 10-k in the future.

I’ve asked Palm for comment and will update this post when it responds.

UPDATE: This just in from Palm:

“The sell-through data we post reflects carriers’ sales to their customers. For example, Sprint customers include consumers who buy in a Sprint store, and Sprint retail partners such as Best Buy and RadioShack. We rely on our wireless carriers to provide us with sell-through data, and we note this fact in our 10Q.”

[Image credit: Flickr/Spintar]

Boy was he ever wrong. MarketWatch reports that revenue at Microsoft’s Entertainment and Devices unit, which manages the Zune and Xbox 360, fell 42 percent to about $211 million in its most recent quarter. Microsoft (MSFT) shipped more Xbox systems this spring than last, so what could be driving that grotesque revenue shortfall?

Yep. After nearly three years at market, Zune has remarkably little share to show for it. In fact, recent data from NPD Group show Zune’s share of the portable media player market at about two percent, compared to about 70 percent for the Apple (AAPL) iPod. And with a sales trend like the one revealed in Microsoft’s January 10Q, market share isn’t likely to be growing much. According to that document, “Zune platform revenue decreased $100 million or 54 percent reflecting a decrease in device sales.”

And that was in a holiday quarter.

Little wonder, then, that some have begun to wonder if it might not be time for Microsoft to just scuttle the device. “The market reception for Zune is so disappointing that many retailers have even stopped selling it altogether,” Tradition Capital Management VP George Kurian told MarketWatch. “Microsoft should abandon Zune and follow Apple’s strategy to try to make its presence felt in the high-growth smartphone sector.”

Those remarks promptly shaved 5.46 percent off of Google’s stock, sending its share price down to $311.75, a three-year low.

Of course, Google’s 10-Q, which was filed on Nov. 7, said pretty much the same thing, though it didn’t have quite the same effect on the company’s share price.

As result of the continued disruptions in the global financial markets, worldwide economic conditions and their impact on levels of consumer spending have recently deteriorated in many countries and regions. Any decreases in or delays in advertising spending due to general economic conditions could reduce our revenues or negatively impact our ability to grow our revenues.”