Palm's Centro lifts sales, but not revenue or profits

Low-cost smartphone is keeping Palm's brand alive during low period in company's financial history, which looks bound to continue for at least another quarter.

Tom Krazit
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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Palm's Centro continues to sell well, but it's going to be a long time before the company's business gets back in the black.

Palm reported its financial results for its fiscal third quarter Thursday. Let's get the good news out of the way first: the Centro lifted Palm to its best smartphone quarter in its history, with 833,000 units on a "sell-through" basis, meaning phones that were actually purchased by people, not retailers.

If it wasn't for the Centro, it's hard to imagine where Palm would be right now. CNET Networks

The problem is that at $99, the Centro doesn't generate a lot of revenue or profit on those unit sales. Palm's overall revenue fell 24 percent from last year to $312 million, and it lost $31.5 million. Excluding restructuring charges and other items, the company lost 16 cents a share, 2 cents worse than what Wall Street analysts were expecting. In its second fiscal quarter, Palm lost $9.6 million on revenue of $349.6 million.

Palm is planning to revamp its Treo smartphone lineup in the upcoming months, said Ed Colligan, president and CEO of the company. New models are needed to replace an "aging" set of Windows Mobile Treos, which will also help the company "rebuild our product line at the high end," he said.

But the real goal for the company is to get an updated version of Palm OS out the door. The ancient operating system hasn't received a significant update in four years, allowing rivals to pass it by in an instant. Colligan reiterated the company's goal of getting that Linux-based operating system out by the end of the year, and praised Executive Chairman Jon Rubenstein for helping attract Apple's Mike Bell over to the team.

Until then, however, Palm will have to rely on sales of the low-margin Centro to keep the lights on. And to make matters worse, it will have to take an impairment charge in the next quarter because of its exposure to the tanking market for auction-rate securities.