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Upbeat sales help Palm shrink loss

The handheld maker reports better sales and a smaller loss than expected in the fourth quarter, as it gears up to take over rival Handspring.

Handheld maker Palm on Tuesday reported better-than-expected fourth-quarter sales and a loss that was narrower than analysts had forecast.

For the three months ended May 31, the Milpitas, Calif.-based company turned in a loss of $15 million, or 51 cents per share, on revenue of $225.8 million. Those numbers compare with a loss of $27.5 million, or 95 cents per share, on revenue of $233.3 million in the same quarter a year earlier.

Excluding certain charges, Palm said it posted a fourth-quarter loss of $8.9 million, or 30 cents per share.

Analysts were expecting a loss of 93 cents per share on revenue of $187.7 million, according to earnings tracking firm First Call.

Palm CEO Eric Benhamou said in a statement that Palm ended the fiscal year with "favorable momentum" almost across the board.

"While the economic context continues to be a challenge, we believe our opportunities for growing shareholder value have improved," Benhamou said.

Palm is in the process of acquiring rival Handspring and is planning to spin off its operating system unit, PalmSource, just before that deal is completed later this year. Palm's earnings report comes as Microsoft moves to a new version of its rival handheld operating system, known as Windows Mobile 2003 for Pocket PC.

The company said it shipped approximately 931,000 Palm handhelds during the just-completed quarter.

Buoyed by the sales of its recently introduced Zire 71 and Tungsten C products, Palm's average selling price for devices increased from $169 in the previous quarter to $207 in the fourth quarter. The ASP is still down compared with the same period a year ago, when it was $216.

"Our new spring handhelds reinvigorated demand this quarter and built on the successful product launch we had last fall," Todd Bradley, Palm Solutions Group chief executive officer said in a release. "Continuing tight operational controls also contributed to our performance."

Worldwide sell-through of devices was up 5 percent, which reverses six consecutive quarters of decline. The company added that inventory levels were around 7 weeks to 8 weeks, which is about average for this time of year.

The company shipped nearly 4.2 million devices in its fiscal year 2003, bringing the total number of Palm-branded devices shipped to date to more than 22.3 million units. More than 29.1 million devices using the Palm OS have been shipped, according to the company.

PalmSource increased the number of licensees in its fiscal year 2003 from nine at the end of 2002 to 15 at the end of this year, and it attracted 272,000 registered Palm OS developers, up from 218,000 a year ago. PalmSource also recorded its first profitable quarter and posted revenue of $73.4 million for the year.

Palm is preparing to spin off its PalmSource OS subsidiary and add the Handspring operations by July. Palm Solutions Group, the hardware division of Palm, has a headcount of just under 700 employees, and PalmSource has about 300 workers.

Chief financial officer Judy Bruner gave revenue guidance of $175 million to $185 million for the current quarter, first quarter fiscal year 2003. Palm has $242.4 million in cash and cash equivalents.

News.com's Richard Shim contributed to this report.