Treo Delay Spurs Palm Earnings Shortfall

A snag in gaining U.S. approval of its latest Treo smartphone will cause Palm  to report lower-than-expected earnings for the second fiscal quarter.

The delay means Palm projects earnings between $390 million to $395 million, down from the $430 million the handheld maker expected in September.

Per-share revenue expectations also fell to 10 to 11 cents, compared to previous expectations of 15 to 18 cents, Palm said in a statement.

Palm, which expects to post Q2 earnings December 19, said the revenue shortfall was due to a “delay in completing the certification process for a product that the company had previously expected to ship within the quarter.”

The Treo 750 should be available in the U.S. in the third-quarter of 2007, Palm CEO Ed Colligan said in the statement.

Palm shares fell $1.08 to 14.33 in mid-morning trading.

The 11 percent drop in projected sales for the second quarter of fiscal year 2007 caused Merrill Lynch to downgrade the stock to “neutral” from “buy.”

While the Treo 750 and the consumer-oriented 680 could alter prospects in 2007, the financial analysts viewed the downgraded revenue expectations as the “third consecutive misstep” behind increased competition from Motorola’s Q smartphone and a delayed European launch of the Treo 750v.

Palm’s stumble could be an advantage for Research in Motion (RIM) , which Merrill Lynch said remains the top smartphone player, thanks to its popular Blackberry gadgets.

One thing going in Palm’s favor is that the pulse of the smartphone market remains strong, especially in Europe, which tends to be ahead of the U.S. on the gadget curve.

Smartphone sell-through across our existing products is strong, reflecting solid business fundamentals in the face of significant competitive pressure,” Colligan said.

Despite the lag in launching the 750 in the U.S., Palm’s 750v, a GSM phone available through Vodaphone, “is doing quite well,” according to Colligan. International revenue for the fiscal second-quarter should be strong, Palm predicted.

Palm has been shifting more resources to Europe, where they see greater freedom in introducing products, according to Randy Giusto, an IDC analyst who co-authored a survey on smartphone interest in Europe and Asia.

The difference between U.S. and European carriers is control, said Giusto. U.S. carriers insist on controlling every aspect of a new handset, down to what logo is shown when a handset is used. Any delay in U.S. certification likely rests with the carrier, suggested Giusto.

While the Merrill Lynch report named Cingular as the U.S. carrier for both the 750 and 680, Palm refused to confirm if a carrier is to blame for the holdup.

“This is a collaborative process here,” spokeswoman Marlene Somsak told

Unlike in Europe, where carriers agree on one standard — GSM — Palm and other handset vendors must have products certified to work with a number of competing U.S. standards, Somsak said.

To illustrate how quickly a product can be introduced in Europe compared to the U.S., Somsak pointed to the July agreement between Palm, Microsoft  and Vodafone to launch a 3G Treo.

Within months, the handset was available, Somsak said. “In short order, Europe will be as big or bigger” as a market, she added.

Meanwhile, Palm’s Q2 shortfall comes as competitors Motorola  and Nokia  came to the market with new smartphones today.

Motorola launched the Motofone for both GSM and CDMA protocols. The device offers an “intuitive new interface built with icons and voice versus text,” as well as voice prompts specifically tailored to local markets.

Nokia issued the Nokia 6290 Smartphone, which combines the power of the S60 3rd Edition and 3G and supports new features, including multiple alarms and “quick cover” access keys to improve usability.

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