Modest Quarter Expected for Palm

Despite a comfortable spate of acquisitions and product releases in the past
few weeks, Goldman Sachs (GS) Friday estimated that key metrics will decrease across the board for Palm Inc., which is expected to report revenue on the low side of its $465 million to $490 million guidance.

Santa Clara, Calif.-based Palm, which has shipped more handhelds than any other contender at more than
11 million units, will discuss its third quarter earnings on Tuesday, March 27 after the
market closes. GS anticipates a dip in metrics across the board — sales, gross margins, average selling price and earnings per share — because of the down season, but believed Palm’s numbers will ascend in the fourth quarter ahead.

Specifically, GS is banking on a $471 million quarter, with earnings for the popular gear maker dropping to a penny a share from the 3 cents a share in the year-ago period. The research firm believes the firm will touch a $205 average selling price for its devices.

If GS is on target it could hardly be seen as discouraging given the current bear market. Could it? Perhaps, if one takes in to account that Palm has kicked up quite a buzz in the past couple of weeks by acquiring synchronization software maker Extended Systems Inc. for $264 million and released a new, sleek Palm 500 series amid a flurry of competition from Handspring Inc., Sony Corp. and Hewlett-Packard Co. Perhaps expectations could have been higher with all of Palm’s progress in the last month or two.

Still, GS predicts positive things for the handheld magnate going forward.

“We are confident that Palm sold somewhere around 2 million devices and
judging on retail supply and pricing on ebay we do not expect component
issues to be constraining supply,” wrote Vik Mehta of GS. “This is Palm’s
seasonally slow quarter, with
most of the revs coming in the back-end (50%+ in Feb). We expect 4Q revs of
$556.1m and EPS of $0.03…”

Considering that former parent 3Com Corp. just announced a devastating quarter Wednesday, Palm would have reason to be ecstatic with these numbers.

What may be even more beneficial to Palm, is its 90 percent market share for
its operating system. Specifically, GS said that the notion that handset
makers such as Kyocera and Nokia will sell Palm OS-based products, bringing
licensing fees to its creator is encouraging for Palm.

Though Palm shares have dipped a gloomy 23 percent in
the past week (in keeping with the harsh market) GS still recommends the

GS was clearly bullish about Palm’s m500 series, which features Secure
Digital technology standard expansion cards.

“Palm will use ROM SD cards to build applications, as well as functional
modules and resell them under the PalmPak brand,” Mehta wrote. “The new
lines of products will offer Palm higher-margin revs and new application
opportunities built on SD.”

Palm, whose 52-week high is $67.38, opened Friday trading at $14.75.

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