Palm Earnings Crash, Future Pegged to Pre

Palm Pre

Even after a 72 percent drop in smartphone revenue from last year, Palm’s grim quarterly numbers didn’t keep CEO Ed Colligan from being upbeat about the potential of Palm’s upcoming Pre to save the embattled mobile device maker’s bottom line.

For its third fiscal quarter of 2009, the company reported a net loss of $98 million, or 89 cents a share, on revenue of $90.6 million — a 71 percent drop from $312 million in revenue for the same quarter a year ago. Revenue from Palm’s smartphone business fell 72 percent to $77.5 million.

Last quarter, Palm’s saw $191.6 million in revenue and posted a net loss of $80.2 million, or 73 cents per share.

Even though the company had earlier warned investors about its anemic performance for third quarter, shares of Palm (NASDAQ: PALM) fell by almost 5 percent after yesterday’s earnings call, which did not include a specific launch date for the much-anticipated Pre.

Still, Colligan did say that the Pre was on schedule for release before July, and that the company was working closely with developers and with the phone’s U.S. wireless carrier, Sprint, to ensure a seamless market entry.

“There’s no showstoppers,” Colligan said during a call with analysts. “We plan on delivering on the time frame we said we would.”

He also promised a dedicated product line built on webOS, the operating system at the heart of the Pre.

“We’re proceeding through a challenging transitional period. However, our current results shouldn’t overshadow the tremendous progress we’ve made against our strategic goals,” Colligan said in a statement. “We’re poised to usher in a new era at Palm.”

The news comes at a time when industry observers are looking to gauge Palm’s ability to make a comeback following years of slow declines — while rivals like Research in Motion’s (NASDAQ: RIMM) BlackBerry and Apple’s (NASDAQ: AAPL) iPhone made inroads into the mobile device and smartphone spaces.

Much of the industry will be watching how Palm fares with the Pre, as many observers have said the company’s fate is virtually tied to whether it can successfully introduce the device to the market on time — and if the Pre line has what it takes to succeed over the long term.

According to Palm, the Pre and its webOS software give users the ability to centralize mobile content and resources in one centralized place — the cloud — and thereby deliver a mobile experience unlike competing devices. For instance, all user data created on webOS-based devices is automatically saved online, and the Linux-based platform can enable users to sync their phone content with other Web-based and PC sources, so it’s accessible elsewhere on the Internet.

[cob:Special_Report]While Ken Dulaney, an analyst with Gartner, isn’t counting Palm out yet, he did say that it faces formidable challenges.

“Palm has time to recover, but the Pre is a ‘bet the company’ product — i.e., if it fails, Palm fails,” he told “If they have any hardware or software glitches, that could hurt. They need compelling applications that match the iPhone.”

The company has other obstacles to overcome as well, he said.

“I think they will be the major smartphone at Sprint, but Sprint has not been healthy — losing share,” Dulaney said. “Palm absolutely needs wider distribution. They need more models for webOS.”

Meanwhile, Sony Ericsson also had dismal financial news, as the No. 4 handset maker reported today that it expects to have sold only 14 million phones during the quarter — half of the number it sold last quarter.

Sony Ericsson blamed the decline on weak demand and retailers cutting their inventories. The company, a nearly eight-year-old joint venture between Sony and Ericsson, is schedule to report its quarterly financial results in April.

Meanwhile, shares of Palm were trading up 2.3 percent at press time, to $7.89.

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