Palm Profits Plummet as Buyout Speculation Swirls

Shrugging off lingering rumors this week that it would be acquired by Motorola  , Palm  Thursday reported a 61 percent drop in third-quarter profits and offered a languid forecast.

Amid a mix of bittersweet news, the smartphone maker also announced that a
district court judge granted a stay of proceedings in the patent-infringement litigation brought against the company by NTP.

Palm CFO Andre Brown said on a conference call the company earned $11.8
million, or 11 cents per share, on sales of $410.5 million. Analysts polled
by Thomson Financial were expecting earnings of 12 cents per share on sales
of $403.6 million.

In the same timeframe a year ago, Palm earned $29.9 million, or 28 cents per
share, on sales of $388.5 million.

Palm did, however, sell a record 738,000 Treo smartphones, which was up 30
percent from last year’s third quarter, and posted smartphone sales of $354
million overall.

However, increased costs dinged the handheld maker’s financials, including
a stock-based compensation expense of $5.7 million and an in-process research
and development charge from acquisitions during the quarter of $3.7 million.

Brown said Palm, which will host an analyst day in New York April 10,
expects earnings of 10 cents to 13 cents per share on revenue of $400
million to $410 million.

The Q3 challenges come after a tough Q2 in which Palm said a
snag in gaining U.S. approval of its latest Treo smartphone led to earnings
of $392.9 million, down from the $430 million the handheld maker expected in

Palm’s weak Q3 comes as rumors about a sale to Motorola or Nokia  hover over the company, but Brown refused to discuss the
speculation on the call.

“We’re just not going to comment on the rumors and speculation and I just
would really appreciate it if the questions were focused on the business,”
Brown said. “We’re focused on operating our standalone company and driving
our plan.”

While the buyout rumors continue to dog the company, Palm can put one
concern to rest for the time being.

The company said yesterday that Judge James R. Spencer of the U.S. District
Court for the Eastern Division of Virginia, granted a stay of proceedings in
the patent-infringement case NTP brought
against Palm last fall.

Spencer also granted Palm’s motion to strike the portion of NTP’s complaint
alleging misbehavior at the U.S. Patent and Trademark Office.

“We are extremely pleased with the court’s decision to grant a stay,” said
Mary Doyle, Palm’s senior vice president and general counsel, in a

“We hope and expect that the PTO’s review of NTP’s patents will confirm the
decision of the examiners to reject them all and so avert the need for
further litigation of this matter.”

Palm can exhale; the last time NTP levied such suits it won
$612.5 million from RIM.

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