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Back in June 2007, Elevation Partners placed a huge wager on smartphone maker Palm (PALM). In its biggest investment ever, the Silicon Valley private equity firm pumped $325 million into the company. The bet now looks like a bomb. On Dec. 1, Palm preannounced a nightmarish quarter, with revenues likely to come in nearly 50% below Wall Street's expectations. On Dec. 10, Palm's stock closed at 1.69, nearly 80% below the price Elevation paid for its shares last year.

Palm isn't the only problem for Elevation, a high-profile Menlo Park (Calif.) firm whose founding partners include financier Roger McNamee, former Apple finance chief Fred Anderson, and U2 frontman Bono. Elevation has done just six deals since it was created four years ago. It owns a stake in the parent company of Realtor.com, which is struggling through the housing meltdown, and it also owns around 40% of Forbes, which like many magazines faces a difficult media advertising environment. "They're in a tough spot," says an investment banker familiar with the firm. "It's hard to see where they go from here."

Few telecom experts think the Palm investment is leading anywhere good. The Sunnyvale (Calif.) company pioneered the smartphone market in the U.S. with its Treo line of products but has fallen far behind rivals such as Research In Motion (RIMM), Nokia (NOK), and Apple (AAPL). Palm's share of the U.S. market has dropped from 23% to 8% in the past two years, according to research firm IDC. "There's no room for treading water and product delays in this market," says IDC analyst Ryan Reith.

Elevation is in better shape than some others in private equity. It never made aggressive use of debt. It was able to sell one investment, a video game company, to giant Electronic Arts (ERTS) for a solid return. And it still has roughly half of the $1.9 billion that it raised for future deals. But unless Palm recovers, Elevation will struggle to deliver decent returns to its limited partners. That in turn could hurt its ability to raise money for investment funds in the future.

Elevation's partners insist Palm is poised for a comeback, and they point to an engineering effort being overseen by former Apple hardware czar Jon Rubinstein. He joined Palm last year as executive chairman, as part of Elevation's investment in the company. With the help of Dan Walker, Apple's former chief recruiter, Palm has brought in dozens of veteran techies interested in working on breakthrough gizmos. "I'm very confident about our plan," says Rubinstein.

NEW PRODUCT GAMBLE

The moment of truth will come at the Consumer Electronics Show in January. Sources say Palm will finally unveil an oft-delayed new operating system, as well as the first in a new family of smartphones. The company won't discuss details, but McNamee says the products will be different from anything on the market. While RIM's BlackBerrys excel at e-mail and iPhones are tops for entertainment, he says Palm will create devices that help consumers easily meld work and play.

Palm doesn't have to vanquish RIM or Apple to succeed. With smartphones expected to balloon from 10% to 50% of the overall 1 billion-unit cell-phone market, Palm could triple its revenues by winning just a single point of the aggregate market. Indeed, McNamee and Rubinstein say they're modeling their plan on the resurrection of Apple, in which marquee products led to financial success. "We hold Apple up as the example of how to do this," says McNamee.

This may be Palm's last chance to get it right. The company says it will burn through about $33 million in cash this quarter. At that rate, its remaining $215 million will last a bit more than six quarters.

Strong box office revenue for film 'Iron Man' helped boost Marvel Entertainment Inc.'s third-quarter earnings by 39 percent, and the licensing and comic-book publishing company on Tuesday also raised its 2008 forecast.

But 2009 will prove a different picture.

Marvel expects only "modest" performance next year, partly due to 'Iron Man' revenue shifting to 2008 and no 2009 summer feature films slated for release. It also cited less expected Spider-Man-related revenue and the slowing economy's effect on the retailers who sell its character-driven merchandise.

In morning trading, shares fell $1.66, or 5.4 percent, to $29.22.

For the three months ended Sept. 30, New York-based Marvel earned $50.6 million, or 64 cents per share, compared with $36.3 million, or 45 cents per share, a year ago. Revenue grew 48 percent to $182.5 million, including about $60 million in earlier-than-expected "Iron Man" revenue, from $123.6 million last year.

The results easily beat the average estimates of analysts polled by Thomson Reuters, who had forecast profit of 45 cents per share on revenue of $146.1 million.

Paramount's "Iron Man", starring Robert Downey Jr. as the title comic-book character, grossed $318.3 million in the U.S., according to Media By Numbers LLC in Encino, Calif. It is the among the 25 top-grossing films of all time. Paramount Pictures is owned by Sumner Redstone's media conglomerate Viacom Inc.

Film production sales totaled $90.2 million in the third quarter, versus none in the prior year. Marvel credited the box office take of "Iron Man," fees for serving as a producer for the film and for "The Incredible Hulk," as well as foreign DVD pre-sales for 'Iron Man,' which was released on DVD on Sept. 30.

In the quarter, licensing fees fell 29 percent to $58.1 million in part due to weakness in Spider-Man film merchandising joint venture. The last Spider-Man film was released in May 2007. Publishing sales slipped 3 percent to $34 million, as lower trade paperback sales and custom publishing weren't totally offset by higher sales of traditional comics.

Based on the stronger-than-expected quarterly results, Marvel raised its 2008 outlook to between $2.45 to $2.65 per share on revenue of $640 million to $670 million, from prior estimates of $1.55 to $1.75 per share on revenue of $450 million to $480 million. The new guidance is well above analysts' average forecast for profit of $1.93 per share and revenue of $527.9 million.

But for 2009, Marvel forecast earnings per share of $1 to $1.35 on revenue of $415 million to $460 million. Analysts had projected earnings of $1.94 per share on revenue of $617.8 million.

"While Marvel's core licensing business continues to grow, global visibility and consumer demand created by tent-pole feature films based on our characters, as well as the timing of related revenues, creates variability in our year over year operating income," Chairman Morton Handel said in a statement.

Marvel's next feature films, 'Iron Man 2' and 'Thor' are slated for release in summer 2010, with 'The First Avenger: Captain America' and 'The Avengers' to be released the following year.