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Palm Hits Pre Targets But Losses Continue

Palm Pre
Palm's (NASDAQ: PALM) fiscal first-quarter 2010 earnings showed the company narrowly meeting shipment expectations for its flagship Palm Pre -- but still posting a net loss for the quarter and lowered estimates for the next three months.

The industry has been watching to see whether the pioneering device maker can make a comeback on the strength of its Pre and Pixi phones and their webOS software, which is aimed at attracting a wide ecosystem of developer partners.

So far, the jury's still out.

During the quarter, the company shipped a total of 823,000 smartphones -- mostly Palm Pres, it said. The shipment represents a 134 percent increase from the fourth quarter of fiscal year 2009, but a year-over-year decrease of 30 percent, according to Palm.

Thanks in part to that performance, the company posted a wider first-quarter net loss of $164.5 million, or $1.17 a share, down from the $41.9 million, or $0.39, it reported a year ago.

Excluding one-time items, Palm posted a Q1 loss of $0.10 a share, beating analysts' average estimate of $0.25, according to Reuters Estimates. Revenue on a non-GAAP basis was $360.7 million versus Wall Street's average forecast of $289.1 million.

Smartphone sell-through for the quarter was 810,000 units, up 76 percent from the fourth quarter of fiscal year 2009 and down 21 percent year-over-year. Wall Street estimates for Palm smartphone sales were in the 700,000 to 800,000 unit range.

While an upswing in sales from last quarter is good news for the struggling handset maker, experts see Palm making further moves to extend the reach of its new phone lineup.

One way could be expanding sales of its devices to carriers other than Sprint, the No. 3 U.S. wireless network and the sole holder of rights to sell Palm smartphones. Hooking up with other partners could help increase sales, and Palm's chief hinted that such developments are in the works.

"We're making significant progress with Palm's transformation, and our culture of innovation is stronger than ever," Palm CEO Jon Rubinstein said in a statement. "We're launching more great Palm webOS products with more carriers, and turning our sights toward growth."

Looking ahead for Palm

Palm is also forecasting sales for the next three months that came in below analyst forecasts. Palm said it expects second-quarter non-GAAP revenue of $240 million to $270 million, missing an average forecast for revenue of just over $345 million.

"We continued with an underperform rating chiefly because the company’s guidance of a sequential decline in revenues in the second quarter implies that Pre sales are not off to the races," Charlie Wolf, analyst with Needham & Co., wrote in a research note today.

Despite the tepid numbers, Rubinstein called it a "landmark quarter," and said now that the work of introducing a new mobile platform is out of the way, Palm can focus on product development, and hailed the Pre's performance in the marketplace.

[cob:Special_Report]"We're receiving excellent reviews from customers who bought the Palm Pre for personal use,"Rubinstein said during Palm's earnings call. "The Pre is also being adopted as a popular business device. Deployments of the Pre within large companies are on the rise."

"We're launching more great Palm webOS products with more carriers, and turning our sights toward growth," he added.

Palm, once a leader in the handheld sector, is now fighting rivals like Apple (NASDAQ: AAPL) and BlackBerry maker Research In Motion (NASDAQ: RIMM), having over the years ceded its dominant position by failing to keep pace with product innovations -- for instance, by not updating its lineup since the popular Treo.

Adding to the competition are smartphones running the Google-backed Android OS coming out from HTC and Motorola, which are being offered by U.S. carrier T-Mobile.

Still, with the introduction of the Pre and its smaller sibling, the Pixi, along with its new webOS mobile operating system, Palm is making strides to reinvent itself under the leadership of Rubinstein, who was integral in the development of the iPod while employed at Apple.

And yet, at least one analyst isn't sure if the Pre sales signal Palm as the year's comeback story.

"I think the numbers are disappointing relative to multimillion quarterly unit sales of Palm's top competitors," Avi Greengart, an analyst with Current Analysis, told InternetNews.com. "It may say more about Sprint's lack of pull than the attractiveness of Palm's Pre and webOS platform, but T-Mobile was able to push over a million HTC G1's within a quarter of its launch late last year."

Needham & Co.'s Wolf pointed out that Palm did beat his own estimates for Pre sales -- and that the future could hold promise for the company.

But he stopped short of declaring Palm's comeback a success.

"The Pre and its siblings running on Palm's WebOS software platform appear to be a serious contender in the smartphone market," he wrote. "But it would be premature at this point to declare it a winner in view of the fact that the smartphone market will shortly be overrun with new phones from Motorola and others running on the Android platform as well as new BlackBerry models in time for the holiday selling season."