Palm Misses Sales Forecasts on Late Deliveries of Treo Pro

Palm has announced its preliminary results for its third quarter of fiscal year 2009, which ended Feb. 27, 2009. The company says that it expects to report revenues for the third quarter of fiscal year 2009 in the range of US$85 million to US$90 million - compared to average estimates of around US$155 million from analysts.

The company put the lower revenue down to the result of reduced demand for Palm's maturing legacy smartphone products, the challenging economic environment and later-than-expected shipments of the Treo Pro in the United States. The company expects declining revenues and continued margin pressure from its legacy product lines in the fiscal fourth quarter.

"The much-anticipated launch of the Palm Pre remains on track for the first half of calendar year 2009, but as expected we've got a difficult transition period to work through," said Palm President and Chief Executive Officer Ed Colligan. "Despite the challenging market environment, the extraordinary response to the Palm Pre and the new Palm webOS reaffirms our confidence in our long-term prospects and our ability to reestablish Palm as the leading innovator in the growing smartphone market."

Palm stated that cash used in operations for the quarter is expected to be between $95 million and $100 million. The company's cash, cash equivalents and short-term investments balance is expected to be between $215 million and $220 million at the end of the third quarter.

Although Palm believes it has sufficient cash, cash equivalents and short-term investments to meet its working capital needs under its current operating plan, the company intends to strengthen its working capital position, and  is currently evaluating options in this regard.

The company also said that it would change how it records sales of software and will record each sale as being spread out over a two year period. This method is also used by Apple for iPhone software sales to exploit an accounting rule which enables it to offer subsequent upgrades free of charge. The company will continue to expense engineering, sales and marketing costs as they are incurred. This accounting treatment will have no impact on cash flow - it is purely an accounting trick.

Posted to the site on 4th March 2009