Palm beats revenue expectations but device sell-through slumps

Palm's revenue for its fiscal third quarter beat company expectations, however its smartphone sell-through figures indicate the vendor's webOS platform is not gaining traction in the market.

The company shipped a total of 960,000 smartphone units during the quarter, up 23 percent from the second quarter of fiscal year 2010 and an almost 300 percent increase from the year-ago quarter. However, smartphone sell-through for the quarter, which ended Feb. 26, was 408,000 units, down 29 percent from the second quarter and down 15 percent year-over-year. Palm CFO Doug Jeffries said the company had entered the current quarter with higher channel inventory and that carriers had either deferred orders or reduced the size of orders from Palm. Average total smartphone selling price was $367 in the quarter, down from $375 in the second quarter.

Palm reported a net loss of $18.5 million for the quarter, narrower than the $95 million net loss it posted in the year-ago period, as smartphone shipments increased. Palm clocked revenue on GAAP basis of $349.9 million for the period, which is stronger than the $285 million to $310 million the company predicted in February. However, on a non-GAAP basis, which includes revenue deferred from the sale of its webOS phones, Palm had revenue of $366 million, much higher than $316.2 million expected by analysts and the $300 million to $320 million Palm had projected. Verizon Wireless began selling the company's devices in late January, and Sprint Nextel has been selling Palm products since June.

"We're very realistic about our near-term challenges, but the issues we're facing are far from insurmountable," Palm CEO John Rubinstein said on the company's earnings conference call.

Rubinstein said the company is disappointed with its smartphone sell-through and how its devices are performing in the market. He said the company has initiated an intensive in-store program to boost retail sales and will continue with it "until a customer can walk into the store and understand the value proposition of Palm products." He said Palm is increasing its marketing, and will continue to focus on improving device performance, noting that Palm has issued 10 over-the-air updates to the webOS platform so far.

The Palm chief said Palm's exclusive relationship with Sprint determined when it could launch with Verizon, which may have hurt the company. "I agree with your premise that if we could have launched at Verizon earlier, prior to Droid, that we would have gotten the attention that the Droid got and since I believe that we have a better product, I think we would have even done better," he said, in response to a question on the call.

Rubinstein stressed that patience is necessary, adding that "it's very rare that you see something just take off." However, he said the company is on the right track, and dismissed speculation that the company is an acquisition target. "Our focus since the day I arrived here, which was around three years ago, has been to build a great company with a great mobile platform and great products."

For more:
- see this Engadget post
- see this Dow Jones Newswires article (sub. req.)
- see this release

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Palm CEO: Verizon's launch 'below expectations'
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