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Palm losses mount despite the Pre

The company still sees hefty losses even as it reports strong sales of smartphones driven by the new Palm Pre.

Updated at 2:55 p.m. PDT with information from the conference call.

Sales of the Pre helped boost Palm's smartphone sales in the company's fiscal first quarter of 2010 by about 134 percent compared to the preceding quarter, but Palm still reported its eighth consecutive quarter of loss, and sales dipped over 80 percent.

Palm Pre
The Palm Pre. Corinne Schulze/CNET

The Palm Pre, available exclusively through Sprint Nextel, is gaining traction. The company sold 823,000 smartphones in the fiscal first quarter. Many of those smartphones are believed to be the Pre.

But even though sales of the Pre were strong, Palm still ended up losing $164.5 million, or $1.17 per share in its fiscal first quarter. Still, the company's losses beat analyst expectations. Excluding items, the company posted a loss of 10 cents a share. Analysts had predicted a loss of 25 cents a share, according to Reuters.

Palm's sales declined to $68 million. But on a non-GAAP basis, revenue came in at $360.7 million. Wall Street analysts had predicted between $289 million and $297 million.

Palm has struggled to regain footing after losing market share over the last couple of years to companies like Apple with its iPhone and Research In Motion, maker of the BlackBerry devices. The Pre has been seen as the company's last hope at getting back in the game.

CEO Jon Rubinstein said on the company's conference call that Palm plans to focus exclusively on its Web OS software. This new operating system is the foundation of the Pre and Palm's latest device, the Pixi. While the company will continue to sell the current generation of Palm Treo products that use Microsoft Windows, it will focus its research and development on Web OS. And all its future products will be Web OS-based, Rubinstein said.

The move is not surprising given Palm's investment in Web OS, but nonetheless it is a blow to Microsoft, which has been struggling to maintain support for its Windows Mobile operating system. Microsoft made a big deal when it first landed Palm as a licensee back in 2005. Then Palm CEO Ed Colligan took the stage with Microsoft Chairman Bill Gates in San Francisco to tout the new alliance.

Palm executives also said the Pre will soon be available on other carrier networks. In Europe it will soon be available on Telefonica's network. And other carriers will soon follow.

The Pre faces stiff competition in the upcoming holiday season. In addition to the iPhone 3GS, which launched in June, there are several new phones coming to market, including several Android devices. T-Mobile is expected to push its HTC-made MyTouch.

Motorola is also launching new Android devices on T-Mobile's network. Pricing details and a launch date for the new Motorola Cliq haven't been announced. But the device is supposed to be on sale before Christmas. And Motorola is expected to announce another Android phone in the coming weeks.

RIM is also expected to launch a new BlackBerry Storm on Verizon's networkin time for the holidays, too.

Still, Palm executives said they believe they have a strong lineup going into the holiday season with the launch of the new Pixi phone, a lower cost device than the Pre, which will also be available on Sprint's network.

Separately, Palm also said that it is planning to sell 16 million shares of common stock. Elevation Partners, which already owns a sizable stake in Palm, expects to buy $35 million worth of stock in the offering, Palm said.

Investors seemed pleased with Palm results, and the company stock, which closed at $14.44 on Thursday, was trading up in the after market.