Palm ahead of estimates for third quarter

By Ashlee Vance, InfoWorld |  Hardware

PALM TUESDAY REPORTED $470.8 million revenue for the third quarter, up 73 percent from the year-ago quarter, with $9.3 million pro forma income or 2 cents per share, beating analysts' estimates. But the company also announced plans to reduce costs, including eliminating 250 jobs and postponing the construction of new corporate headquarters in San Jose, Calif.

Analysts polled by First Call/ Thomson Financial predicted the handheld vendor would make 1 cent per share for the period.

Sales of Palm's flagship handheld product also increased 112 percent when compared to the same quarter a year ago, for a total of 2.1 million handhelds shipped, the company said.

However, Palm is suffering from the U.S. economic slowdown, CEO Carl Yankowski said in a conference call to detail the financial report. Although the company fared well in the third quarter, he expects flat demand during the fourth quarter.

The company plans to decrease operating expenses in the fourth quarter by 10 percent to 15 percent. The layoffs should be completed by the end of April, Judy Bruner, senior vice president and CFO at Palm, said during a conference call.

"The sudden change in our near-term outlook has been jarring to us," Yankowski said.

Palm, in Santa Clara, Calif., dominates the PDA market, but faces increasing competition from the likes of Compaq Computer and Hewlett-Packard, which use Microsoft's Pocket PC platform for their handhelds. Palm officials have said that the company will continue to make gains in the PDA space by concentrating on a simple, thin device, while its army of licensees do battle against the larger, feature-rich devices made by Compaq and HP.

Handspring -- one of Palm's licensees -- saw its shares shoot up 26 percent after announcing a deal with technology distributor Ingram Micro. Handspring expects the deal to help it leverage sales channels, according to a statement.

During the third quarter, Palm's licensees chipped in $8.6 million of the handheld maker's revenue total. Although the company has said it hopes software licenses will make up the lion's share of its revenue in the future, the figure today pales alongside the $451 million in sales derived from Palm's own hardware. The vendor made a further $11.2 million in content and access sales.

International sales contributed 41 percent of the company's revenue for the quarter and offered a mixed message: On one hand, Palm managed to increase its penetration overseas; on the other, the numbers also reflect a significant slowdown in the U.S. economy, Bruner said.

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