Palm sales down - and up

The handheld maker reports a smaller than expected loss, with sales down on last year but up on the previous quarter
Written by Richard Shim, Contributor

Palm reported on Wednesday a quarterly loss that was slightly smaller than expected, while sales were down 44 percent compared with the same period a year ago.

The handheld maker reported a loss of $25.2m, or 4 cents per share, on revenue of $290.6m for its fiscal second quarter that ended 30 November. Those figures count inventory writedowns and restructuring charges, as well as amortisation of goodwill. In the same quarter a year ago, the company reported earnings of $27.5m, or 4 cents per share, on revenue of $522.2m.

Excluding the special charges, the company reported a loss of 6 cents per share. That narrowly beats the consensus figure from analysts of a loss of 7 cents per share, according to First Call.

Despite the year-over-year drop in revenue, the company's sales were up 36 percent over the previous quarter.

"We regained our operational focus this quarter, and the results have been that we have exceeded internal and external expectations," Eric Benhamou, Palm's chairman and interim chief executive, said during a conference call.

Benhamou added that Palm significantly reduced its cash burn rate and that inventory channels were at six weeks, down from almost 16 weeks three quarters ago.

Palm ended its second fiscal quarter with $241m in cash and cash equivalents, compared with $321m in cash and cash equivalents at the end of its fiscal first quarter.

While anticipating a more stable future, Benhamou acknowledged that 2001 was particularly difficult for Palm. The company did not advance its technology fast enough, Benhamou said, promising that next year Palm will have a "steady stream of innovations." He added that Palm had mishandled business basics such as the launch of m500, and he pointed out that 70 percent of top management was new to the company.

Benhamou laid out several goals for the company, such as the separation of the company's hardware and software business in early 2002. This will include producing individual financial reports for them.

Benhamou also said that a beta version of Palm's next operating system will be available in the company's fiscal fourth quarter.

Chief financial officer Judy Bruner said the company shipped 1.51 million handhelds in its fiscal second quarter -- more than expected -- but that the average selling price was down to $164, compared with $227 in the previous quarter and $212 in the same quarter a year ago. The significant drop in the average selling price was due to the high demand for discontinued m100, m105 and Vx devices, which the company did not anticipate.

Bruner said the company is looking for revenue of $250m to $260m in the current quarter and $290m to $300m in the fiscal fourth quarter, when Palm expects to break even.

Palm's revenue for its fiscal second quarter exceeded the guidance the company gave in late November when it laid off about 250 workers. The company now has about 1,200 employees. When it announced the layoffs, the Santa Clara, California-based company also said it expected to bring in $250m to $280m in revenue for the quarter.

Some analysts had been expecting Palm to report less than $220m in revenue for the quarter, but good holiday-related sales and an improving inventory situation gave a boost to revenue.

Palm is a company in transition, despite its lead position in the markets for both handheld hardware and operating systems.

The company is in the process of spinning off its operating system unit into a separate company. Meanwhile, its hardware division is looking for a permanent chief executive after Carl Yankowski resigned in early November.

Of the chief executive hunt, Benhamou said, "We are not in a crisis situation so there is no hurry."

Palm received $50m on 7 December from an unnamed investor. The company plans to use the funds for its wireless and corporate sales efforts.

Less than a week later, Palm announced that it would acquire software company ThinAirApps for $19m in stock, as part of Palm's attempt to attract more corporate customers.

Then on Monday, Palm announced that it had chosen Texas Instruments as the "preferred," but not exclusive, supplier of chips for its future wireless devices. One such device has been identified in filings with the Federal Communications Commission as the i705. The device was expected to come out this year but has been delayed until 2002.

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