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Losses continue, but revenues grow fast at Handspring

Handspring reports losses of $5.9 million for the quarter, though revenues grow by 51 percent, in its first earnings report as a public company.

    Handspring today reported losses of $5.9 million for the quarter, though revenues grew by 51 percent, in its first earnings report as a public company.

    Handspring, which has become one of the top three manufacturers of handheld devices in its first two years of existence, completed its initial public offering last month.

    Including one-time charges for deferred stock compensation, the company reported a fiscal fourth-quarter loss of $19.5 million, or 43 cents per share. That compares with a loss of $4.23 million for the same period last year.

    Excluding the one-time charges, the company had a loss of $5.87 million, or 13 cents a share.

    Revenue for the quarter, however, came to $51.8 million, a 51 percent leap over sales of $34.3 million for the third quarter. For the entire fiscal year, Handspring came away with $101.9 million in revenue and losses of $20.2 million, or $1.77 per share.

    Handspring's Visor handheld is based on the operating system developed and licensed by Palm, which itself went public in February. The Visor resembles a Palm device, with the addition of an expansion slot dubbed the Springboard that allows people to upgrade with MP3 players, digital cameras, memory and other add-ons.

    This year, Handspring will focus on delivering a range of wireless applications to its customers via the Springboard add-on cartridge, CEO Donna Dubinsky said today in an interview with News.com.

    "A lot of thought went into how (the Visor) will accommodate wireless," she said, noting that the Springboard expansion technology is more flexible than the Secure Digital card, which Palm recently chose as its expansion choice for future devices.

    "We have a solution that's been architected from the very start for expandability. If you look at all the other standards out there, they're all pretty much focused on content and memory. That's a subset of Springboard," she said.

    Priced starting at $149, the Visor is targeted at the entry-level consumer, including families and students, rather than the executives or professionals that Palm and rival Microsoft have traditionally gone after. In August, Palm is set to release a new version of its Palm IIIe with changeable color cases in an apparent attempt to squeeze Handspring out of the mass market for these devices.

    When Palm licensed its operating system to Handspring, it brushed off questions about competition and customer overlap by pointing to the fact that Handspring was adding to the product by offering expandability and targeting a different customer segment, to boot. Those differences are becoming less and less clear, however, as Palm revises its strategy in the face of Handspring's success in the retail market.

    "We never expected that color cases were a sustainable long-term competitive edge," Dubinsky said, laughing. "Our competitive advantage is the expansion architecture we've developed. It's the big differentiator of our products."

    For its part, Palm concurs.

    "My sense is that products are getting more different than similar," said Alan Kessler, chief operating officer of Palm. "We're really quite happy with what's happening with the Palm platform."

    This quarter, Handspring began selling its devices in retail stores, including Best Buy and CompUSA, as well as via online retailer Amazon.com. This follows a somewhat rocky effort selling Visors directly through Handspring's Web site.

    Profit margins on its products declined from 32 percent in the third quarter to 31 percent in the fourth quarter, reflecting the new distribution strategy.

    The introduction of higher-end devices will eventually alleviate the decline in profit margins, Dubinsky said. "There will be an offsetting impact as new products come in at higher price points," she said.

    Handspring shares have surged in the past week as a result of analyst upgrades and new analyst coverage.