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Palm posts net loss, delays spinoff

The handheld maker reports a third-quarter net loss but logs the first profitable quarter for its PalmSource operating system subsidiary. The PalmSource spinoff is delayed, however.

Handheld maker Palm reported on Thursday that its third-quarter revenue was in line with recently revised estimates but said it saw a loss that was greater than that of the same period a year ago.

The company also said it is pushing out the schedule for the spinoff of PalmSource, its operating system subsidiary. Palm was expected to spin off the unit as a separate company by the middle of the year, but during a conference call Thursday afternoon, Palm CEO Eric Benhamou said the move would be delayed until the summer.

Milpitas, Calif.-based Palm said revenue for its fiscal third quarter, ended Feb. 28, was $209 million. The company reported a loss, excluding the effects of amortization of intangible assets, separation costs, impairment charges and restructuring charges, of $26.5 million, or 91 cents per share. Analysts were expecting a loss of 91 cents per share, according to earnings tracking firm First Call. In the same period a year ago, the company reported revenue of $292.7 million and a loss $14 million, or 49 cents per share.

The company's net loss, as measured by generally accepted accounting principles, was $172.3 million, or $5.93 per share. The loss included restructuring charges of $40.2 million and impairment charges of $102.5 million.

Revenue was in the upper end of estimates, which Palm revised earlier this month. The handheld maker said revenue would come in at $205 million to $210 million, compared with its previous expectation of $230 million to $250 million.

Palm blamed the revenue warning on lower-than-anticipated sales of its high-end Tungsten handhelds in the United States.

Palm cut the price of the Tungsten T in early February from $499 to $399, and worldwide sales have picked up 75 percent. The Zire and Tungsten W are also proving to be popular among their target audiences, but it may not be enough to help fourth-quarter revenue.

Palm CFO Judy Bruner said that revenue for the current fourth quarter, which ends in May, will be in a range of $185 million to $200 million, which is off 15 to 20 percent compared with the same period a year ago.

The company's launch of its spring product line will not occur until the second half of the year and won't help fourth-quarter revenue. However, the company's supply chain has inventory in its desired seven- to eight-week range.

Bruner added that the hardware and operating system divisions will see an operating loss.

In the third quarter, the company's operating system subsidiary, PalmSource, did have positive results.

"The progressive recovery of the handheld industry is continuing, although still held back by weak economic fundamentals," Benhamou said in a release. "We are pleased to post the first profitable quarter of our PalmSource subsidiary. Palm is determined to return to sustained profitability without sacrificing its participation in the growth drivers of the next chapter in the handheld industry."

PalmSource had revenue of $26.3 million in the third quarter, which is its strongest because it realizes gains from the holiday selling season. Palm Solutions Group had revenue of $197.9 million in the third quarter.

In the third quarter, Palm cut about 19 percent of its work force across both divisions.

Palm shares closed Thursday at $10.89 and were down nearly 7 percent, or 74 cents, to $10.15 in after-hours trading.