Comments on: Q2 Earnings Call: Palm Inc Retuns to Profitability

Palm, Inc. which consists of two operating units Palm Solutions Group and PalmSource -- today reported revenues of $265 million for the second quarter of fiscal year 2003, ended Nov. 29, 2002, down 9 percent from the $291 million reported during the comparable quarter a year ago, and up 54 percent from the first quarter of fiscal 2003.
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Hmmm.. good profit making strategy.

ska @ 12/18/2002 5:53:38 PM #
-Net income, as measured by generally accepted accounting principles (GAAP), for the second quarter of fiscal year 2003 was $3.5 million,

-A $20 million equity investment from Sony Corp.

wasn't there also that mysterious $50M investement a while back too?

RE: Hmmm.. good profit making strategy.
IanJD @ 12/18/2002 6:35:02 PM #
The $3.5M profit is for the hardware group, the $20M went to PalmSource, so the hardware group are actually making a real profit; looks like they did it by shifting a lot of inventory.

Sony aren't great philanthropists, either; they like having a stick to hit MS over the head with; $20M will be chump change to them.

I wonder if they split the $50M between the companies. :)

RE: Hmmm.. good profit making strategy.
ska @ 12/18/2002 7:52:54 PM #
I thought the report is for Palm Inc. the holding company of Palmsource and Palm solution groups?
RE: Hmmm.. good profit making strategy.
IanJD @ 12/18/2002 8:00:35 PM #
Oops, mea culpa. Would have thought they'd be releasing separate accounts by now.

$50 million
ginsberg @ 12/18/2002 8:27:46 PM #
Palm never publicly stated the source of the $50 million investment that was made about a year ago.

You can be fairly certain it was from Texas Instruments - sort of a gesture of appreciation for Palm choosing to use TI OMAP processors in Palm's OS 5 devices, instead of Intel or Motorola ARM-based processors.

RE: Hmmm.. good profit making strategy.
rojo @ 12/18/2002 8:50:49 PM #
I hope you are not suggesting the $20 and $50 million investments made the income seem higher than it should.
Although, my accounting class in college was 10 years ago, but an income statement shows the change in Owner's Equity due to operating the business over a period of time and just lists the companies revenues less the expenses. Therefore the investments of sony and other would not affect it.

RE: Hmmm.. good profit making strategy.
EdH @ 12/19/2002 9:21:04 AM #
Note that the in the $3.5M profit is over $4M of interest income. Take about $1M of tax expense out and they made $389K from operations, the rest was interest on their cash balance.

What is impressive to me is that on declining sales and volumes from the same quarter last year, they increased margins quite a bit. They have made significant cost reductions, and given the release of the Zire, Tungsten T, forthcoming Tungsten W and OS5, they seem to be spending what is necessary in R&D.

Man, Yankowski really hosed this companies balance sheet.

RE: Hmmm.. good profit making strategy.
Gekko @ 12/19/2002 10:50:16 AM #
>"they made $389K from operations"

Sheesh. I bet MSFT spent more than that on toilet paper for their employees this morning.

RE: Gekko / Toilet Paper
LgLator @ 12/19/2002 11:15:07 AM #
" I bet MSFT spent more than that on toilet paper for their employees this morning."

Gekko, my dear fellow, I couldn't agree more. These Redmond chappies must surely require vast quantities of toilet paper. Fortunately for them, the Windows revenue stream allows them to buy only the softest tissue.

RE: Hmmm.. good profit making strategy.
razzle @ 12/22/2002 5:44:46 AM #
Yeah, well its real easy to make a profit when you cheat owners of M130. Like me and many thousands who live in Australia. You see everybody else in the world got compensated except us down under. We got jack, zip, nada from Palm Inc, ooh except a M130 that doesnt display 65000 colors. Who says crime does'nt pay??

Zire and Tungsten T implications

hotpaw4 @ 12/18/2002 11:32:57 PM #
according to the Reuters story:
> Palm's fiscal second quarter, which ended Nov. 29
> Palm shipped some 1.4 million units
> Together, the models [Zire & Tungsten] represented some 44 percent of the products sold to retailers in the quarter, Palm said.

But the Zire was only introduced at the beginning of October and the Tungsten T's at the very end. So this 44% combined share of PalmSG shipments implies that they sold over 600 thousand Zires and Tungsten T's in only 1 to 2 months, and *before* the start of the holiday shopping season.

Even if quarterly sales decline around 10% as per their forcasts, this implies that Palm could ship well over a million of units the new models before the end of January.

RE: Zire and Tungsten T implications
Admin @ 12/19/2002 11:23:15 AM #
Another interesting fact I took from the call was that Zire models are in limited supply in some retailers (strong demand) and that based on initial Zire registrations, 90% of Zire buyers are new to PDA's.

RE: Zire and Tungsten T implications
EdH @ 12/19/2002 2:55:52 PM #
90%? I want to meet that other 10% that "upgraded" to a Zire. ;-)

RE: Zire and Tungsten T implications
rojo @ 12/19/2002 3:46:48 PM #
Well, I guess if there are still Pilot 1000 & 5000 users out there it would be an upgrade :)

RE: Zire and Tungsten T implications
ginsberg @ 12/20/2002 10:20:56 PM #
Palm's success this quarter was based largely on the confluence of three factors, none of which are likely to be repeated anytime soon.
1) New Zire and Tungsten product lines introduced just before Holiday season allowed huge sell-in.
2) R&D spending has been cut by 27% ($10 million) from the same quarter of a year ago.
3) The factory of a component supplier burned down a few years ago and Palm received $5 million in insurance for lost business.

As such, it seems likely that Palm will be in the RED again in the next few quarters. By cutting R&D, you see the results in the unipressive Tungsten W, which at $550, is going nowhere. Tungsten T needs a price cut to $399 soon because it just is not worth $499 and Palm's share of the enterprise market is slipping.

Palm is now the same size it was in 1999.



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