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Palm's profits fall despite Treo sales

Treo shipments reach 470,000 in the quarter, up more than 160 percent from same period last year.

Palm's quarterly profits fell despite growing sales of its Treo smart phone, the handheld device maker said Thursday.

The Milpitas, Calif.-based hardware company formerly known as PalmOne said its fiscal first-quarter net income was $18.2 million, or 35 cents a share. That's down from $19.6 million, or 38 cents a share, that Palm reported in the same period last year. Its first quarter ended Sept. 2.

Excluding special items, the company posted a profit of 41 cents a share. On that basis, the company beat analysts' average estimate of 36 cents a share,

Palm CEO Ed Colligan said he is pleased with the momentum behind the Treo.

"We're clearly benefiting from wireless e-mail, but we are also positioned well with our Treo line as we see the transition to 3G networks and move from analog to digital media," Colligan during a conference call with analysts Thursday.

Palm said it shipped 470,000 Treo units for the quarter, which represents an increase of more than 160 percent from the same time last year.

The company said nearly all of Palm's smart-phone shipments are for its Treo 650, which debuted in October 2004. The first Treo 600 sold in 2003 after Palm acquired the technology from Handspring. Palm eventually bought Handspring as well.

Palm said its LifeDrive devices and Tungsten and Zire handhelds did not perform as well as Palm had hoped. The company blamed the drop in shipments of as much as 22 percent on a slow sales in Europe over the summer, lagging sales in the Asia-Pacific region and a general decline in the demand for PDAs.

Colligan promised to improve video playback and camera capabilities on future models of the LifeDrive.

Despite success with its Treo, the company is currently lagging behind BlackBerry maker Research In Motion and Nokia in the smart-phone category. Palm shipped 642,000 units in the second quarter, compared with 840,000 BlackBerry devices, according a Gartner report.

Market researcher Canalys said 12.2 million devices that could be classified as smart phones shipped in the second quarter, more than double the 5.9 million shipped in the same quarter a year ago.

For the next three months, Palm said it expects revenue of $435 million to $440 million. The company's gross margin is expected to be in the range of 30 percent and 30.5 percent. Operating expenses on a GAAP basis are expected to be between $100 million and $102 million. Using non-GAAP accounting, operating expenses of $97 million to $99 million are expected.

Reuters contributed to this report.