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Palm still waiting for new products to end losses

Palm's fourth fiscal quarter was just like the last few: sales of the Centro are taking off, but Palm's making little if any money on the sale of each $99 smartphone.

Tom Krazit Former Staff writer, CNET News
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom.
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Tom Krazit
2 min read
The Palm Centro is selling like hotcakes, but it's hurting Palm's margins. CNET Networks

Palm is still struggling as it awaits the arrival of new Treos and a new operating system.

The company on Thursday reported a net loss of $43.4 million for its fourth fiscal quarter, or 40 cents a share, compared with net income of $15.7 million last year. That loss is not as bad as it looks because of restructuring charges and the write-off of some bad debts, but even factoring all those charges out Palm still lost $23.9 million, or 22 cents a share. Analysts polled by Thomson One were hoping for 18 cents.

Palm's main problem, which also happens to be its biggest strength, is the Centro. Sales of the $99 smartphone have taken off, allowing Palm during the quarter to sell the highest number of smartphones directly to customers--968,000 units--in its history. Around 70 percent of Centro buyers are first-time smartphone owners, said CEO Ed Colligan on a conference call following Palm's results.

But Palm doesn't appear to make very much money on the sale of each Centro; Colligan danced around a question from a financial analyst regarding whether Palm makes any money from a Centro sale. He said the margins on the Centro are exceeding Palm's expectations, but that doesn't exactly answer the question of whether the Centro is a profitable device.

Either way, the Centro is keeping Palm's brand alive as it scrambles to get new Windows Mobile-based Treos out next quarter. The Treo refresh should allow Palm to command "competitive" pricing against other high-end smartphones, Colligan said, and will likely go a long way toward getting Palm back in the black.

But Palm's chances at once again becoming a relevant company in mobile computing hang on the development of its new operating system, which Colligan reiterated is on track to appear in new products in early 2009. The new Linux-based software, combined with "game-changing hardware" according to Colligan, is going to face strong competition from the likes of the LiMo Foundation, Google, and others when it finally arrives.