Palm beats estimates, but shares fall after hours

The handheld maker reports earnings that edge past expectations but sees its shares get hammered in after-hours trading.

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Yankowski defends Palm's outlook
Carl Yankowski, CEO, Palm
Palm on Wednesday reported earnings that edged past expectations, but the company still saw its shares get hammered in after-hours trading.

Excluding amortization and other charges, Palm reported net income of $27.5 million, or 5 cents per share, on sales of $522.2 million. Analysts had been expecting Palm to report earnings of 4 cents per share on sales of around $500 million.

Including the charges, the company earned $20.3 million, or 4 cents per share, in its fiscal second quarter that ended Dec 1.

In a conference call, chief financial officer Judy Bruner said Palm expects a post-holiday dip in sales in its current December-February quarter, with revenue projected to be $465 million to $490 million. She added that the company expects strong growth in the following quarter--its fiscal fourth quarter--and continues to expect to take in $1.9 billion to $2 billion for the full fiscal year.

Palm shares, which slid 12 percent in regular trading to $38.13, fell another 17 percent in after-hours trading to $31.75, according to Island ECN.

In its second quarter last year, Palm reported net income of $15.5 million, or 3 cents per share, excluding charges, and $12.9 million, or 2 cents per share, including amortization and other charges.

"Four straight quarters of more than 100 percent revenue growth show that Palm is continuing to delight its customers with the products and services that they need and want," chief executive Carl Yankowski said in a statement Wednesday.

Palm shipped more than 2.1 million handhelds in its second quarter, an increase in unit shipments of 45 percent from the approximately 1.5 million units it shipped in the previous quarter.

While component shortages have eased overall, Bruner said some parts woes continue and full relief isn't expected until February or March. In particular, Bruner said Palm has had trouble getting enough of a radio-frequency part needed in the Palm VIIx as well as driver chips needed to power the screens on the Vx and m100 models.

Profit margins fell in the fiscal second quarter to 36.1 percent from 38.3 percent in the previous quarter. They are expected to fall to the 30 percent to 35 percent range in the last two quarters of the fiscal year, Bruner said. Palm attributed the drop to the popularity of its cheaper Palm IIIxe and m100 devices.

Palm expects increased margins from its new high-end devices, which should debut in the spring. Those units will include expansion via a postage stamp-sized technology known as Secure Digital.

Separately, Palm said it is spending $40 million to $45 million to acquire Portland, Ore.-based WeSync, which makes software that allows Palm owners to share calendars. The purchase price will depend on when the deal closes, Palm said.

Intially, Palm plans to integrate WeSync's technology into the MyPalm portal set to debut Dec. 25. Longer term, Palm said, the WeSync acquisition will help the handheld maker as it tries to expand its wireless service business.

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