Palm to release earnings, new handheld

The earnings report comes the same day that Palm officially launches the m125, a $249 handheld that resembles the entry-level m100 and m105 but adds a Secure Digital expansion slot, USB connection and the same connector for add-ons or syncing that is used on Palm's m500 series.

Back in June, Palm said it expected an operating loss of $60 million to $80 million on revenue of $200 million to $220 million for its fiscal first quarter ending in August. Palm also said it hoped to return to profitability in the September-to-November quarter on revenue of $420 million to $440 million, as the company stocks retail stores and distributors for the holiday shopping season.

However, some analysts are skeptical that Palm can reach its goal in the current quarter, worried that already-slow consumer spending may continue to weaken.

Salomon Smith Barney analyst Richard Gardner said in a research note Wednesday that he believes the August quarter "proved challenging to Palm" and that the company's goal of cutting inventory was hurt by weak demand and price cuts--problems that could hurt Palm in the current quarter as well.

"We believe that management's current gross margin and revenue guidance for the November quarter will prove aggressive," Gardner said.

For its first quarter, a consensus of analysts expects the company to post a loss of 8 cents a share, according to First Call.

Palm is still recovering from a massive loss in the previous quarter with $435 million in charges, including a large write-off for unsold goods. The company found itself with the inventory glut after a sudden drop in demand, exacerbated by problems with the launch of the m500 and m505.

U.S. Bancorp Piper Jaffray analyst William Crawford said he is paying close attention to how much cash Palm used during the quarter and to any hint of its strategy to attract more corporate customers over the long term.

"This is an important time for the company," Crawford said. "They have to make some difficult decisions."

As for the new handheld, Crawford said the release of the m125 highlights a problem already hurting Palm--the erosion of prices and profit margins in the market for handhelds with black-and-white screens. The new $249 Palm m125, which offers a black-and-silver case, will cost $50 more than the comparable Handspring Visor Neo and low-end Sony Clie.

Also hovering near Palm's new price range are Handspring's Visor Edge and Visor Pro, both at $299, and Palm's own $329 m500 and $299 Vx. Palm has stopped making the Vx but continues to sell the device.

Palm and Handspring have been forced to reduce the price tag of the m500 and Edge amid slow demand for pricey monochrome models.

John Cook, senior director of product planning and management at Palm, said that although most sales are either at the high end or low end of the market, the midrange m125 with 8MB of memory could serve as a bridge for entry-level customers who want the expandability offered via a Secure Digital slot. Cook also touted the fact that the handheld comes with a 33MHz processor, version 4.0 of the Palm OS, and the Documents To Go software for reading and editing Microsoft Office documents.

The new handheld--anticipated for some time--has actually already shown up on store shelves and in catalogs. By delaying the official product announcement until now, Cook said, the company was trying to avoid the problem it had earlier this year when it announced the m500 and m505, long before the devices were widely available.