Palm Q1 Loss Widens On Costs; Revenues Up 10% - Update

(RTTNews) - Thursday, Palm, Inc. (PALM | Quote | Chart | News | PowerRating), the maker of Treo and Centro smartphones, reported a wider net loss for the first quarter compared to last year, as gross profit fell owing to increased cost of revenue. The company is facing stiff competition from Research In Motion's (RIMM, RIM.TO) Blackberry device and Apple's (AAPL | Quote | Chart | News | PowerRating) iPhone. Aggressive pricing by competitors has placed Palm in a vulnerable position.

The Sunnyvale, California-based Palm posted a net loss applicable to common shareholders of $41.9 million or $0.39 per share, compared to the year-ago net loss of $0.8 million or $0.01 per share.

On a non-GAAP basis, Palm's net loss totaled $12.8 million or $0.12 per share, compared to a net income of $9.7 million or $0.09 per share in the corresponding period last year. On average, sixteen analysts polled by First Call/Thomson Financial expected the company to report a loss of $0.18 per share for the quarter.

Net loss for the quarter included stock-based compensation of $7.0 million, amortization of intangible assets of $0.9 million, patent acquisition cost of $1.5 million, restructuring charges of $0.5 million, impairment of non-current auction rate securities of $15.0 million and accretion of series B convertible preferred stock of $2.4 million. Net loss for the comparable period last year included stock-based compensation of $5.1 million, amortization of intangible assets of $1.0 million, patent acquisition cost of $5.0 million, restructuring charges of $6.6 million and gain on sale of land of $4.4 million.

Canadian smartphone giant Research In Motion for the first quarter reported 116% surge in profit, while revenues soared 107%, on the strength of the BlackBerry platform. Though, Research In Motion's first-quarter results increased significantly from last year, they were lower than what analysts had expected. Also, the Canadian company's second-quarter outlook dampened expectations.

Apple launched its 3G iPhones on July 11 in 21 countries and reported a sale of one million sets within the first three days of the launch. The new cheaper versions with added features came in just one year after the iPod maker launched the original version. In the third-quarter, Apple posted increased earnings and revenues, helped by sales of Macintosh PCs and the iPhone.

Commenting on the results, Ed Colligan, Palm President and Chief Executive Officer said, "I'm pleased with our momentum as we work to re-establish Palm as the leading innovator in the smartphone marketplace."

Palm's total revenue for the quarter increased to $366.86 million from $360.76 million in the prior-year period, and came in above the Street estimate of $325.15 million.

Palm sold 1,029,000 units of Smartphone, up 49% year-over-year, fetching revenues of $333.8 million, an increase of 10% from the year-ago period. During the first quarter, Research In Motion shipped about 5.4 million devices, while 2.3 million net new BlackBerry subscriber accounts were added in the quarter, bringing the total BlackBerry subscriber account base to over 16 million.

As Palm's cost of revenue increased to $269.52 million from $230.34 million a year ago, gross profit slipped to $97.34 million from $130.42 million in the same quarter last year.

Operating loss stood at $21.81 million for the quarter, compared to a loss of $4.5 million last year.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the quarter totaled a negative $27.8 million.

"While we're still in the midst of our transformation and have challenges ahead, we are bringing outstanding new products to market, hiring world-class talent and preparing to launch a new platform that will usher in a new era at Palm." Ed Colligan added.

On September 16, analysts at Morgan Joseph initiated coverage of Palm with a "Buy" rating, while setting the target price at $10. The analysts pointed out in a research note that Palm's unit sales benefited in fiscal year 2008 from sell-through rates of the Centro device. Analysts say the smartphone market, likely to grow 11% to 1.28 billion units in 2008, is hugely under penetrated.

Brokerage firm Cowen & Co. on September 17 commented that the November outlook for Palm will depend upon Treo uptake. The firm expects November revenue at $359 million and pro forma earnings per share of $0.11.

PALM traded in the after hours at $7.70, down $0.79 or 9.31%. The shares closed the regular trading at $8.49, up $1.28 or 17.75% on a volume of 7.22 million shares.

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