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RealTime IT News

Palm's Woes Continue as Rivals Enjoy Successes

Palm Inc. warned on Thursday that it will post a loss for the quarter ended Nov. 30 as revenue fell short due to a product delay, driving the company's shares down 16.5 percent.

The news sparked concerns that the maker of the Treo phone could miss out on the critical end-year holiday shopping season for a second year in a row due to poor execution.

The disappointing preliminary results, which came after a warning in October, contrast with successes by rival devices such as Apple iPhone and Research in Motion's Blackberry push into the market.

Palm said it now expects to report fiscal second-quarter revenue in the range of $345 million to $350 million, down from its previous forecast of $370 million to $380 million. Analysts on average were expecting $376 million, according to Reuters Estimates.

The shortfall was primarily due to a delay in shipping a product that Palm had expected to have been certified in the quarter, the company said, without giving any more details.

"It is a disappointment," said Oppenheimer analyst Lawrence Harris. "It's been a pattern of uneven performance ... On a seasonal basis Palm should be doing well now. November should be a strong month going into the holiday season."

Palm, which makes advanced cell phones and digital organizers, forecast a fiscal second-quarter net loss of 22 cents to 24 cents per share, or a loss of 8 cents to 10 cents per share excluding special items that it did not detail.

The forecast for the November quarter was far worse than the 3 cents per share profit, excluding items, that Wall Street was looking for, according to Reuters Estimates, which had initially put the forecast at 2 cents per share.

The actual results will be released on Dec. 18, Palm said.

The company also cut its estimate for gross profit margins for the quarter to a range of 29.3 percent to 29.8 percent, from its earlier target of 33.3 percent to 33.8 percent.

It said the lowered margin outlook was due to an increase in warranty repair expenses, higher-than-expected shipments of its lower-end Centro phones, as well as the product delay.

"We are disappointed that we did not get a key product certified for delivery in the quarter, but we are focused on realizing the long-term benefits and opportunities that inspired our transaction with Elevation Partners," Palm President and CEO Ed Colligan said in a statement,

In October, Palm closed a $325 million recapitalization deal with the private equity firm Elevation Partners that gave it a 27 percent stake in the company.

Before the deal closed, Palm had warned that its quarterly results would lag Wall Street targets, as it faced growing competition and set aggressive prices for its Treo and Centro devices.

The Centro is a smaller and lighter version of Palm's flagship Treo. Analysts said it was good that sales of the Centro, which costs $99 at Sprint Nextel, appeared strong even if the cheaper phone weighed on Palm margins.

Palm's shares fell to $5.50 in after-hours trade from their close on NASDAQ of $6.59, which was up 4.27 percent from the day before.