Palm Swings to 4Q Loss Amid Restructuring, Misses View

Published on: 26th June 2008

Palm swung to a fiscal fourth-quarter loss on declining revenue as it works to revitalize its line of smartphone and wireless devices.

One bright spot in Palm's report was its Centro, a $99 device that has proved popular with customers new to the smartphone segment. The Centro carries lower margins than Palm's flagship Treo line, which has put pressure on the company's bottom line despite strong sales.

"Centro is a tremendous hit, we are gaining market share and we believe with this momentum and the launch of new Windows Mobile products we will turn the corner and return to revenue and margin growth," Chief Executive Ed Colligan said.

Shares traded after hours down 3.7% at $6.30 as results fell well below analysts' expectations.

For the period ended May 30, Palm posted a net loss of $41.1 million, or 40 cents a share, compared with net income of $15.4 million, or 15 cents a share, a year earlier. Excluding stock compensation, restructuring and other items, the loss was 22 cents.

Revenue dropped 26% to $296.2 million, but smartphone sales rose 29% to 968,000 units.

The mean estimates of analysts polled by Thomson Reuters were for a per-share loss of 18 cents on revenue of $301 million. In December, Palm announced it would stop giving quarterly forecasts to focus on long-term goals.

Gross margin slumped to 25.2% from 38.2%.

In March, Colligan warned strong Centro sales wouldn't be enough to offset the downturn in its enterprise business as the company struggles to compete with Research in Motion's BlackBerry device and Apple's iPhone. But since former Apple executive Jon Rubinstein took over as the head of product development last year, the company has tapped many former Apple employees.

Colligan sees next fiscal year as a turning point as Palm expects to launch a new Treo this summer, which should help fiscal 2009 results and boost gross margins and average selling prices early in the year. A core problem for Palm has been the lumbering pace of innovation at the company, along with a myriad of delays on product releases. When Rubinstein took over in October, he warned that a completely new device wouldn't appear for another 18 months.

Earlier this month, Palm reached a deal with Verizon Wireless to sell the Centro, making the device available to Verizon's 67.2 million customers. Sprint Nextel began selling the Centro last fall, followed by AT&T and international carriers.

-By Lauren Pollock, Dow Jones Newswires; 201-938-5964; lauren.pollock@dowjones.com

(END) Dow Jones Newswires

 

Tags: [thomson]  [windows mobile]  [verizon wireless]  [verizon]  [apple]  [palm]  [blackberry]  [compete]  [sprint]  [jon rubinstein]  [myriad]  [pace]