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Palm's Financial Results: Bad News and Good

Fri Dec 7, 2007 - 9:04 AM EST - By Dieter Bohn


Palm's finances haven't had their turnaround yet, if their preliminary numbers for Quarter 2 of Financial year 2008 are any indication. The official numbers will be available on December 18th, but Palm has stated that they have a pretty good idea where they'll be:

Based on preliminary financial data, Palm expects revenue to be in the range of $345 million to $350 million for the second quarter of fiscal year 2008. This compares with earlier guidance of $370 million to $380 million provided Oct. 1, when Palm reported its first quarter fiscal year 2008 results.

Not only do the numbers fall short of what Palm expected of itself back in October, they fall well short when you compare them to the same period last year. In Q2FY07, Palm earned $392.9 million in revenue and achieved record sell through. They are also down over last quarter's revenue, $360.8 million. In short, the numbers look a little bleak but certainly don't look catastrophic.

However, it does seem clear that Palm recognizes that they need to explain the poor performance, and their explanation is a classic case of "Good news/Bad news:"

"We are disappointed that we did not get a key product certified for delivery in the quarter, but we are focused on realizing the long-term benefits and opportunities that inspired our transaction with Elevation Partners. We are pleased with recent improvements in our product delivery engine, the early success of Palm Centro, and the significant progress we've made on our strategic platform," said Ed Colligan, Palm president and chief executive officer.

Exactly what product was delayed is unclear, but it's certainly aggravating to hear that Palm is experiencing more problems with certification with carriers. They've experienced this issue in the past - certification causing delays, which then cause disappointing quarterly results.

The good news is that it's a strong sign that we can expect a new Treo from Palm in the near future. The only Treo we're well aware of in the pipeline is the Treo 800w, a Windows Mobile Treo due up for Sprint. The 800w is expected to be the first Treo with integrated WiFi, so it would not be surprising if its delay caused a hit on Palm's revenue.

Palm also noted that their margin is also lower this quarter, due to an "unforeseen increase in warranty repair expenses" and higher-than-expected sales of the Centro. While it's tough to say what exactly is causing Palm's warranty expenses to increase, it doesn't strike us as a good sign. The higher Centro sales, though, are another case of good news/bad news. It's great the the Centro is more popular than even Palm had expected, but its low cost (and thus low margin) must sting a little.

Palm will announce the official results on Tuesday, Dec 18th.

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