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Analysts See Centro Strength Eating Into Margins

Mon Mar 17, 2008 - 2:24 PM EDT - By Jennifer Chappell


Palm said last Tuesday, March 11th, that they'll announce their third-quarter fiscal year 2008 financial results on Thursday, March 20th, shortly after 4 p.m. Eastern (1 p.m. Pacific), followed by a conference call for the public at 4:30 p.m. Eastern (1:30 p.m. Pacific)

As we all know, the Centro is selling very well. In a MarketWatch article by Aude Lagorce last month, Palm's CEO Ed Colligan said that U.S. shipments had been very encouraging and that early data suggested it may help Palm reach a new category of consumers. An early survey showed that twice as many women were buying the Centro than the last Treo phone Palm rolled out. And the Centro also appeals to younger customers.

The article mentions that the success of the Centro has had an impact on margins. Gross margin for the third quarter fell to 29% from 35.6% last year. Colligan believes that it's more important for the moment to woo new customers. Colligan is quoted in the article saying:

"We felt it was more important to gain new dedicated Palm users. We are sacrificing a little bit of margin. It is driving the mix a little differently,"

Today I read an article at Tech Trader Daily - Barron's Online in which Eric Savitz talks about Palm shares taking some heat this morning. It seems there is some concern that the Centro is cannibalizing demand for the higher-margin Treo. The article mentions that Citigroup's Jim Suva thinks that even though the Centro traction might be viewed positively, he thinks this will be offset by the negative financial impact. Suva also thinks that Palm will see increased pressure from the iPhone and the BlackBerry. And he thinks that Apple's release of the iPhone SDK and enterprise mail app is a larger risk to Palm than it is to RIMM.

Well, Palm is well aware of the impact that the Centro has had on margins, and Ed Colligan has already said that Palm felt is was more important to gain new dedicated Palm users. We'll see on Thursday how the margins come out. I'll be listening in on the conference call and will reporting on what I hear so stay tuned.

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