Palm's good news: The Centro is a hit. That's the bad news too

Palm's good news: The Centro is a hit. That's the bad news too

Summary: Palm had a simple message during its third quarter earnings conference call: The Centro is selling. It's a hit.

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Palm had a simple message during its third quarter earnings conference call: The Centro is selling. It's a hit. Normally, that would be great news. But when you're biggest product is a $99 smartphone you have a few profit margin issues.

After the closing bell Thursday, Palm said that it lost $17 million, or 16 cents a share, excluding charges. A year ago, Palm (all resources) had a profit of $16.5 million. Revenue was down to $312.1 million in the third quarter from $410.5 million a year ago. Palm's net loss was $31 million, or 30 cents a share. According to Thomson Financial Palm was expected to report a loss of 14 cents per share on revenue of $315.3 million.

First, the good stuff. Here's what CEO Ed Colligan had to say (transcript):

This quarter we report record sell-through of 833,000 smartphones. A huge chunk of that sell-through is the result of the Palm Centro getting off to the best start of any smartphone in Palm's history. We could not be more pleased by the reception of the Palm Centro.

We have consistently sold more than 30,000 Centros per week and as we add carrier partners, that number continues to grow. In fact, the usual pattern with a new product is an initial burst of volume at any individual carrier which fades over time as the product ages. With the Centro, we are seeing the opposite, with volume growing over time. This volume is building our already strong customer base and it is expanding it to new demographics.

Indeed, Palm's Centro units are growing and the company just landed AT&T as a carrier in addition to Sprint. Palm sold 833,000 units in the third quarter, 686,000 in the second and 689,000 in the first quarter.palm1.png

And the bad news:

Centro's success last quarter did not offset the continued declines in our traditional handheld business and the fact that our Windows Mobile product line is aging. The combination of these factors and a mix shift toward lower margin Centros resulted in revenue of $312 million and a loss of $0.16 a share. As we continue to increase Centro volume and rebuild our product line at the high end, we expect to see a shift back to higher margins and a return to sustained profitability.

You know where this is headed. Palm's success clearly hinges on developing that high end smartphone that can compete with the iPhone, BlackBerry and a bevy of devices that have left the Treo in the dust. The Treo looks downright clunky these days with tired designs and a tired OS.

palm2.png

On the bright side, Palm says 70 percent of Centro buyers are traditional cell phone users who are buying a smartphone for the first time. These folks will eventually trade up. Palm's challenge is giving these people something to trade up to.

Other odds and ends:

  • Palm is having some trouble getting components for the Centro. Colligan said "there are a couple of components that could constrain this quarter, depending on how much that growth exceeds our expectations, frankly. Right now we are starting to see early demand from carriers that would push right up against the wall relative to today's committed supply."
  • Colligan said Palm expects "to refresh our Windows Mobile product line before the end of the summer, with exciting new products which will be targeted at business customers."
  • The new Palm OS is "meeting its major milestones."
  • Palm's recovery remains a fiscal 2009 story. Until it develops its new platform and launches new high-end phones, it will remain squeezed. Average selling prices were about $331 per unit. "While we expect ASPs to rebound in the first half of next fiscal year as new Treos are introduced, we do expect to see additional declines in ASPs for Q4 as a result of the continued mix shift towards Centros," said Andy Brown, Palm's CFO.

Topics: Mobility, Hardware, Smartphones

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13 comments
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  • The Centro's great

    Its success isn't exactly a shock either.

    Pricepoint + good product = hit.

    I had no intentions of getting one, but after tinkering with the Centro for awhile I seriously considered it. It's just so tiny it completely makes you reprioritize your wants in a smartphone (pocketability suddenly became a much more important component to me.) But in the end, I opted for the HTC Touch, an even more pocketable phone, because I wanted (yes wanted) Windows Mobile instead of the Palm OS.

    Some of the upcoming Treos will be very feature rich, but I doubt they'll have much success creating converts from the Blackberry legions. Treos have historically been on the higher end of the pricing scale as well and I'm not sure how they'll fare side-by-side with the iPhone, higher-end Nokias and the premium WM smartphones HTC and Sony will be cranking out (the Xperia from Sony looks absolutely amazing.)

    Next gen Palm OS? At least they have a guaranteed hardware platform. But between the iPhone, Blackberry, Windows Mobile, S60, Android and the Palm OS, I could easily see Palm being the first voted off the island.
    RustyShackleford
  • RE: Palm's good news: The Centro is a hit. That's the bad news too

    This is a frustrating situation. I've owned a Palm converged device ever since the excellent and much-mourned Kyocera 7135, and straight Palm PDAs long before that. I *want* to stay with Palm...

    But the Treo 755p is frustrating--the PalmOS is showing its age when it locks up for seconds at a time because it can't handle interrupts; the keyboard is a poor replacement for the full Grafitti interface, and the anticipated Linux-based OS just keeps fading into the future.

    Palm, get moving! I won't get a Windows phone--I have to fight Windows enough day-to-day to have it there, too!--and don't want a Blackberry. But you make it hard.
    ignatz_z
    • I sure wish Kyocera was back in the smartphone business

      I had a Kyocera 7135 too till its phone functions just flat out wore out from long, RELIABLE use. Oddly, the PDA portion of the 7135 still works well enough to be my ONLY means that I can back up any data from my instable, unreliable Palm Treo 700P. The Palm Treos (VZW gave me a second one as a replacement but it has ALL the same problems) are poor, they will no longer synch to the computer and IR beaming data entries to the 7135 has become last-resort backup method.

      I vote Palm off the island NOW!
      berock
  • Palms Toast

    I've been watching Palm very closely over the last 5 years...and even with Roger McNamara on board with Elavation partners it is too little too late. They cannot compete with IPhone or RIM (who has put a patent in for touch screen like IPHONE) not to mention Nokia and a whack of other huge players (and google isn't in yet with Orange)

    Palm RIP...stock was over $200 in 1992...today it is $4.70 and will only drop faster than Lindsay Lohans panties (when she wears any)in the coming 6 months.

    Yeah...BONO still hasn't found what he's looking for and it cost him and his partners $ 325 Million.
    christopher.j
  • RE: Palm's good news: The Centro is a hit. That's the bad news too

    They came to the show too soon with not enough, did not
    adjust to the market, had a chance to work a co-effort
    product with Apple many times, many years ago, but as
    Steve Jobs himself understands (and many of us will keep
    reminding him...) that arrogance only breeds tolerance...
    Once there is something better out there with a justifiable
    pricepoint, the tolerance factor is removed. Palm's TREO
    line was close to great, but never enough and the overall
    design fell behind the times, let alone the guts of the
    product. With the release of the iPhone, Palm's future was
    foretold; now with the iPhone ramping-up Enterprise
    efforts and slowly emerging upon an iPhone-hungry
    international market, even RIM is not safe...
    NinjaZX7R
  • In my opinion

    Palm should take the T|X, add a faster processor and more memory, and then add phone functions to it. Maybe even a longer lasting battery. The T|X is very thin and easy to carry in a pocket.

    You can already watch movies on it, listen to music, read, surf the internet (through Wi-Fi). Add a phone and it would be perfect.
    Beat a Dead Horse
  • RE: Waiting for new devices

    I am a Treo 680 user and I have great expectations for new devices with wi fi, gestures software, A2DP,best camera resolution, etc (unlocked)of course besides the standards Palm has running in all Treos.
    francisco1de9jess46
  • 70 percent of Centro buyers were traditional cellphone users

    In other words, 70% have no experience with Palm "Support" and Palm reliability and stablity. They'll learn.

    I had a very reliable Kyocera 7135 operating stably on Palm OS. But after years of use the phone functions started to wear out. Kyocera however decided to exit the smartphone business. The only Palm OS choice from VZW was the Palm Treo 700P. My mistake was believing that this P-O-S (that doesn't stand for Palm Operating System) was as stable as the Kyocera.

    This Treo locks up and has to be re-set EVERY time the text messaging is open for viewing when the receipt confirmation comes through. That means EVERYTHING-is-stopped-and-you-have-to-pull-out-the-battery reset. P-O-S!

    Added application programs suddenly go AWOL permanently. P-O-S!

    It means that useless Palm Support's solution is that they "support no application program that isn't created by Palm" so their only solution to correct instability and unreliability is to delete EVERY non-Palm application program (despite Palm's sales pitch about those thousands of application programs that are not available for other phone operating systems, programs which DID work stably on the Kyocera). P-O-S!

    And when THAT doesn't correct the reliablity and instability problems, useless Palm Support's only OTHER solution is that the MANUALLY entered PIM (personal information manager) data MUST be corrupt and that that data that took years to develop must somehow be corrupt and must be DELETED!! (Let me see now. I just spent hundreds for a smartphone that can't have ANY application programs and can't accept ANY data without being corrupted. Why then, Palm Support, did I buy your "smart" phone????) P-O-S!!!

    And, oh yeah, what little data I do have can no longer be backed up to my computer because the on-the-phone operating system has become so unstable that it will no longer synch to the computer!! What's my only option, Palm Support? Beam those contacts and appointments and notes to that old Kyocera smartphone (the PDA portion still functions reliably) as a backup and if the Treo wipes out, iNDIVIDUALLY beam back the data entries from the old Kyocera to the new Palm Treo!!! P-O-S!!!!!!!!!!

    And this is on BOTH the FIRST and SECOND Treos that VZW provided. Palm, no wonder you're gasping for survival, the way you treat your customers!!!! P-O-S!!!

    If what Apple does to insure reliability of the iPhone works (versus what Palm and VZW do), I say "bring it on" and bye-bye to Palm and to VZW (after 16 years) when this contact ends.

    Another commenter that states: "I want Apple to deliver for me a device I can depend upon for my work on a daily basis with a set of applications that I can be confident of using in a secure manner when I acquire them. I
    want them to certify the applications if that is what is required. ... What I hear is the machine is stable and just works no matter where one is in their travels. The support costs for our traveling staff have plummeted. ... Give me a stable platform with the right productivity apps and and let those that want and need a more open platform experiment with a different product."

    Palm and VZW, on the other hand, can go suck a P-O-S Treo!! I can't imagine the Centro being any less unreliable.
    berock
  • Why does everybody need a cell phone with their PDA?

    I'm not sure I get this. A cell phone is often actually quite ghastly - expensive data plans and a two year contract that costs a gazillion if you decide to drop their service. Seriously, the cell phone industry is the only industry I know of that costs big money to quit using them.

    So, why do people feel they need a cell phone to get PDA functionality? And why do they put up with these horrid two year contracts?
    CobraA1
    • That's a great argument for the PDA-only market

      Your comment is exactly why I have a Palm T|X - I already have a cell phone I like, and since the T|X is Bluetooth-compatible, I can surf the 'Net using my Bluetooth-compatible phone without incurring huge data charges.

      It seems like the market for PDA's has hit a (hopefully) temporary plateau. Apple has the iTouch (that iPhone without the phone) and Palm only has three units now (the Z22, the Tungsten and the T|X). Really, there isn't anyone else worthwhile. Palm must continue to stay in the PDA game.
      chas_2
      • PDA user

        I completely agree with you. Palm is good at Palm OS. And
        Palm OS PDAs are very good. I have been using Palm TX
        last 2 years. I never had any complaint and works great.
        Palm Managment is not good, if they improve little bit on
        Palm TX like adding memory (4 or 8 gb), today memory is
        cheap and supporting good web browser to view Videos,
        no one will beat Palm TX near future atleast 2 or 3 years.
        Decrease the prices to $200 to $250 dollar.
        I got apple iTouch for my wife, it is having good features
        and good gaming things. But you cann't view any
        documents and mail client.
        Little improve in Palm TX and add the media player in Zire,
        it will capture good market.
        I like Palm OS, it is very reliable.
        I hope Palm Mgmt is listening to this.
        Palm User
  • RE: Palm's good news: The Centro is a hit. That's the bad news too

    I bought a palm tx instead of a phone for exactly that reason. Having 24/7 access to a phone is not my priority and the larger data area and graffiti is. I am already worried if my Palm dies I will not be able to replace it with a one-time-cost and then you're done device. The "not-so-affluent" crowd needs to manage data too.
  • I like Palm but they're way behind

    I have been a Palm user since the original PalmPilot Personal edition. Palm has done a lot of things right in the past, but in the last five years, they've slowed to a crawl. The Z22? Horrible screen. The T|X? Slow Graffiti input (I own one so I know this). While I'm glad the Palm OS is stable and relatively simple, I'd like to see them introduce more new offerings. Palm is now owned by ACCESS, a Japanese company. Let's hope ACCESS is the breath of fresh air Palm's been needing.
    chas_2