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Palm's 1Q profit slips on 4 percent rise in sales, stock comp expenses

September 22, 2006
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By MAY WONG AP Technology Writer
The Associated Press

Palm Inc., maker of Treo smart phones, said Thursday its profit for its fiscal first quarter fell 9 percent as it accounted for stock option expenses for the first time and grappled with slow sales growth amid tougher competition.

For the three months ended Sept. 1, Palm said it earned $16.5 million, or 16 cents per share, compared to $18.2 million, or 18 cents per share, a year ago.

Excluding $6.7 million in stock-based compensation and other one-time items, Palm said it would have earned $21.5 million, or 21 cents per share. In the year-ago period, Palm's adjusted net income was $13.7 million, or 13 cents per share.

Revenue was $355.8 million, up 4 percent from $342.2 million in the year-ago period.

Analysts polled by Thomson Financial were expecting, on average, adjusted earnings of 18 cents on revenue of $354.4 million.

Earlier this month, the Sunnyvale-based handheld communications company had warned that sales would land between $345 million and $356 million, falling short of previous expectations by about $30 million due to slow Treo sales.

Palm is facing increasing competition in the smart phone market amid new and lower-priced offerings from its longtime rival Research in Motion (News - Alert) Ltd., maker of BlackBerry (News - Alert) devices, as well as Motorola (News - Alert) Inc. and Nokia (News - Alert) Corp.

Palm plans to expand its global efforts to grow sales and last week introduced its new Treo 750v in Europe, a region in which the company has had minimal market share. Palm also plans to introduce a lower-priced Treo model for consumers later this year.



"We executed well on a number of fronts, significantly increasing profits and Treo sell-through," said Ed Colligan, Palm's president and chief executive officer. "The product announcements we made this month put us in an even better position to meet marketplace demands and extend our worldwide reach."

For the second quarter, Palm forecast that sales will be $430 million to $450 million and that earnings per share will fall between 15 cents and 18 cents. It expects that earnings excluding items will be 20 cents to 23 cents per share.

Analysts were expecting, on average, earnings of 28 cents per share on revenue of $472.7 million for the quarter.

Palm said it will focus more on trimming costs and gaining market share over profitability for the remainder of the year.

Palm also announced that its board of directors has approved a stock buyback program of up to $250 million of its common stock.

Charlie Wolf, a Needham & Co. analyst who has a "buy" rating on Palm, thinks Palm's outlook will strengthen in its fiscal third quarter after the consumer-oriented Treo is released and after businesses have had more time to weigh the myriad of smart phone options that cropped up this past year.

"Palm will do very well in the enterprise market," Wolf predicted. He cited how Palm's new model using Microsoft (News - Alert) Corp.'s Windows Mobile operating system will likely give it an edge over rival offerings that use a different platform and may not integrate as easily into companies' Windows-based computing systems.

Shares of Palm fell $1.11, or 7 percent, to close at $14.50 on the Nasdaq Stock Market. In extended trading following its report, shares rose 68 cents, or 4.7 percent.


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