Palm Inc Reports Q3 Financial Results

Palm Inc today reported revenues of $209 million for the third quarter of fiscal year 2003, down almost 30% from the same quarter a year ago. PalmSource has posted its first profitable quarter and Palm Powered handhelds accounted for 71 percent of all personal digital assistants shipped in the second half of 2002.

Palm, Inc. which consists of two operating units -- Palm Solutions Group and PalmSource -- today reported revenues of $209.0 million for the third quarter of fiscal year 2003, ended Feb. 28, 2003, down 28.6 percent from the $292.7 million reported during the comparable quarter a year ago. PalmSource reported it?s stongest quarter to date with $26.3 million in revenue and $6.6 million in income.

Non-GAAP net loss in the third quarter totaled $26.5 million, or $(0.91) per share. This compares to a non-GAAP net loss in the third quarter of fiscal 2002 of $14.0 million, or $(0.49) per share, which excluded the effects of the reduction in special excess inventory costs and amortization of intangible assets. Non-GAAP net income in the second quarter of fiscal year 2003 was $5.7 million, or $0.19 per share, which excluded the effects of amortization of intangible assets, separation costs, and restructuring charges. All earnings-per-share figures have been adjusted for the 1-for-20 reverse stock split effective Oct. 15, 2002.

For the third quarter of fiscal year 2003, net loss, as measured by generally accepted accounting principles (GAAP), was $172.3 million, or $(5.93) per share. This net loss included restructuring charges of $40.2 million and impairment charges of $102.5 million, both described in a March 3, 2003 press release. The restructuring charges related to rationalizing real estate locations and reassessing the ability to sublease vacant facilities; severance payments related to layoffs; and other items related to right-sizing Palm Solutions Group and PalmSource. The impairment charges included a non-cash charge of $100 million to reduce the carrying value of the 39 acres of land owned by the company in San Jose, Calif. to the current fair market value and a $2.5 million impairment of intangible assets. For the third quarter of fiscal year 2002, net income was $2.9 million, or $0.10 per share and for the second quarter of fiscal year 2003 net income was $3.5 million, or $0.12 per share.

"The progressive recovery of the handheld industry is continuing, although still held back by weak economic fundamentals. We are pleased to post the first profitable quarter of our PalmSource subsidiary. Palm is determined to return to sustained profitability, without sacrificing its participation in the growth drivers of the next chapter in the handheld industry," said Eric Benhamou, Palm's chairman and chief executive officer.

Benhamou noted the following year-over-year improvements:gross margins of 31.3 percent vs. 29.2 percent; operating expenses of $86.5 million vs. $105.2 million, and Inventory of $23.3 million vs. $50.6 million.

According to IDC's study in the United States, Palm Powered handhelds accounted for 71 percent of all personal digital assistants shipped in the second half of 2002. Palm Powered smart phones led the U.S. converged handheld space with a market share of 79 percent in 2002, IDC said.

Based on the first two quarters of shipping data, the Palm Zire handheld is the fastest-growing handheld in Palm's history with shipments totaling more than 850,000 units. Palm SG shipped approximately 1 million Palm branded handhelds, bringing cumulative shipments to more than 21 million.

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Wow!

abosco @ 3/20/2003 6:29:16 PM #
850,000 Zires? 71% total US marketshare for Palm OS? PalmSource profitable? 79% total smartphone marketshare???

Pocket P-what?

-Bosco
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RE: Wow!
mikecane @ 3/20/2003 7:26:28 PM #
850,000 Zire owners -- who will probably never upgrade to another PalmOS unit because these simple Zires will continue to suit their needs for years to come. Palm should've made it slippery -- that way they could have counted on more sales from breakage...

RE: Wow!
93LE @ 3/20/2003 7:57:29 PM #
"Pocket P-what?"

Heh. That's funny. Palm loses $173 million dollars in three months, and you think they are dominating the market.

RE: Wow!
asiayeah @ 3/20/2003 8:43:58 PM #
Yes, Palm OS is still dominating the PDA market. That's for sure. Look around your friends and you would notice that most PDA users are Palm OS users.

However, Palm OS is not going to dominate the smartphones market. Both Pocket PC and Symbian OS are stronger in the smartphones market.

--
With great power comes great responsiblity.

RE: Wow!
abosco @ 3/20/2003 10:06:24 PM #
"Palm loses $173 million dollars in three months, and you think they are dominating the market."

Boy are you clueless! Did you completely skip over the facts? Does 71% marketshare mean anything to you? THAT is called domination. PPC has had three years, and if you include HPC with previous versions of CE, a few more. Palm's still on top by a large margin.

And Mike, come on man, have some faith! I guarantee you at least 10% of those Zire owners will end up upgrading to something over $300 in their next PDA purchase. Hell, look at me. M105 -> NX70v... Eh? Eh?

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RE: Wow!
93LE @ 3/20/2003 10:59:16 PM #
Ok. I see your point. 71% market share is indeed dominating the market.

BUT, they DID lose $173 million in 3 months.

Palm may dominate the market all the way into bankruptcy, or into Sony's pocket. Either way, dominating the market hasn't done squat for Palm.

RE: Wow!
masitti @ 3/20/2003 11:13:45 PM #
If Palm's best seller is the Zire than they can dominate the whole market for all I care. :)

------------------------
Mario Masitti
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RE: Wow!
Ricky @ 3/21/2003 12:41:13 AM #
Look at how much money MS' Pocket PC division has lost over the years- more than Palm has.

RE: Wow!
hotpaw4 @ 3/21/2003 1:18:50 AM #
Look at it this way. If Palm's revenue is way down, but their percentage market share isn't, then all the other PDA vendors together are in the same boat. Whatever features either PPC's or Palm's currently have, they aren't enough to sustain buyer interest in this economy... except at the very low end, where Zire sales figures seem pretty decent.

RE: Wow!
masitti @ 3/21/2003 1:23:45 AM #
Yep... but Microsoft could sell it for notta and still make profit because it does not only focus on Pocket PC.

------------------------
Mario Masitti
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RE: Wow!
mashoutposse @ 3/21/2003 6:52:59 AM #
Considering that Palm Inc. has to sell about 4-7 Zires to generate the same revenue (and profit?) as that generated by the sales of a single unit of a high end PPC (or PalmOS) model, I think revenue is probably a more relevant number in this case.

RE: Wow!
mikecane @ 3/21/2003 7:26:05 AM #
>>And Mike, come on man, have some faith! I guarantee you at least 10% of those Zire owners will end up upgrading to something over $300 in their next PDA purchase. Hell, look at me. M105 -> NX70v... Eh? Eh?

Didn't you just make my point with your example? 10% of 850,000 is a paltry 85,000. So Palm can not only expect a 90% decrease in sales, but when that 10% actually upgrades, they will give SONY their $$$?

Back to the drawing board for you...

RE: Wow!
RoelvdV @ 3/21/2003 8:12:45 AM #
Qout: "However, Palm OS is not going to dominate the smartphones market. Both Pocket PC and Symbian OS are stronger in the smartphones market."

Huh? How about this:
"Palm Powered smart phones led the U.S. converged handheld space with a market share of 79 percent in 2002, IDC said."

Greetings, Roel.

RE: Wow!
93LE @ 3/21/2003 8:37:40 AM #
"Look at how much money MS' Pocket PC division has lost over the years- more than Palm has."

Have any numbers to back this up ?

Also disconcerting here is that Palm had this terrible quarter WITH THEIR NEW PRODUCTS ! The Tungsten T was a poor seller at $499, because it was underdeveloped (what good is a multimedia palmtop if it ships with no multimedia apps ?), and the competition is too strong.

Even now, the Tungesten sells for $100 more than the Ipaq 1910, Dell Axim, Toshiba E335, and the Viewsonic V35.

The Zire may sell well, but as others have mentioned, you'd need to sell a billion of them to turn a profit...

Palms revenue will only go down as the Tungsten T ages, if they don't strengthen their lineup soon...

Oh well. I'll shut up. I just find it hard to be optimistic about a company that is bleeding money, living on an aging product line, and touting their 'market share' as a show of how dominant they are... They can have all the market share they want, but if they don't make money soon, they'll be bankrupt (or a subdivision of Sony).

RE: Wow!
mikecane @ 3/21/2003 9:47:46 AM #
Hear, hear. The 1910 and V35 are killers.

Where's the PalmOS PDA with WiFi built-in? Where's the 320x480 one-piece non-twistable PalmOS PDA?

What are they waiting for?!

RE: Wow!
hkklife @ 3/21/2003 9:53:36 AM #
I can see how a company in rather dire financial straits such as Palm might have a hard time shoehorning features like virtual grafitti or integrated wi-fi into a m500/V (still the paradigm of handheld design) formfactor, so we can forgive them on that. But Palm not being able to get at least a refreshed color Zire with more ram and more buttons out at the $150 price point is really disheartening. I think that the average consumer couldn't care less about 12 bit vs. 16 bit color on an m130 style screen, as long as it's reasonably large and bright.

I'd also like to *someday* see a color Palm that can use throwaway batteries. I think Palm would be wise to introduce a larger (say, between the m100 and III) slightly "ruggedized" handheld that might have a splash resistant casing. Being color and/or disposable battery powered would attract a lot of outdoorsy types and industrial users. Just a thought. Look how Panasonic has quietly done well selling their "toughbook" ruggedized laptops for the past few years.

RE: Wow!
Foo Fighter @ 3/21/2003 10:12:12 AM #
Guys, don't even bother comparing Palm/PalmSource losses to Microsoft's Mobility Group. That's like comparing the financial performance of Krispy Kreme to a local mom and pop donut shop. Redmond could shrug off the $172 Million Palm lost without batting an eye. While losses such as this could KILL Palm.

And, no offense, but you people seem to have very little understanding of the business world. You think that having Zire make up the bulk of Palm's handheld sales is a good thing? Dear God, pass me the Vodka!

"it's better to be a pirate than join the navy." - Steve Jobs

RE: Wow!
mikecane @ 3/21/2003 10:13:40 AM #
>>m500/V (still the paradigm of handheld design)

Er, no. The new paradigm is the hp 1910. It makes the m5xxs look and feel like bricks! It even makes the TT feel like a brick! (If only the 1910 didn't have such a crappy stylus...)

RE: Wow!
Scott R @ 3/21/2003 10:16:54 AM #
"Er, no. The new paradigm is the hp 1910. It makes the m5xxs look and feel like bricks! It even makes the TT feel like a brick! (If only the 1910 didn't have such a crappy stylus...)"

Almost, but not quite. The m5xx-series come with a flip-cover, which a lot of people are content with. The TT is thicker but shorter and it, too, comes with that clear snap-on cover. If the 1910 came with a flip cover, I think you'd be right, but size matters most when you're carrying it in your pocket, not when you're actually holding it and using it.

Scott

RE: Wow!
Foo Fighter @ 3/21/2003 10:44:22 AM #
Well, since the TT isn't selling well, any discussion regarding which device is better is a moot point considering the 1910 is outselling TT.


"it's better to be a pirate than join the navy." - Steve Jobs

RE: Wow!
madmaxmedia @ 3/21/2003 11:26:19 AM #
Too bad it's not a level playing field, now that would have been interesting. I don't fault Microsoft for their success, but it's kinda cool to see the little guy still hold its ground (at least by unit marketshare.)

The PDA market, while stable and of decent size, never took off in the way Palm and others thought. I think that, more than anything else, has led to losses by Palm and Microsoft's PPC division.

I think a smaller player like Palm can still compete and succeed here along with Microsoft, as long as they successfully scale back as needed.

I do think Palm needs to improve their development. The TT was really overpriced at $500, compared to the new PPC's. But as PDA's get more features (color, advanced OS, multimedia, etc.) it probably will get harder for a smaller player like Palm to compete with Microsoft. Thank god Sony is a Palm licensee.

As far as the Zire goes, the good news is not that it generates the most unit sales for Palm, the good news is simply that they sold that many. People buying the Zire probably weren't going to buy anything more expensive anyway.

RE: Wow!
BlueAnon @ 3/21/2003 11:58:23 AM #
h1910 price has been going UP since introduction. granted it was opening with deep discount and now it is being introduced in europe with new h1915 label. But unless HP is insane, they think they can sell the same h1910 as h1915 in europe and asia at ~$450 and at $280-299 here in US without handing out discount anymore.

T|T price on the otherhand has approach $300, after receiving general $100 price cut. And TG50 hasn't reach the retail space yet. TG50 offers a lot of similar feature as T|T.

T|W? mmm...

RE: Wow!
abosco @ 3/21/2003 12:28:39 PM #
Now wait just a second Foo, Mike, and ol' Blue.

The V/m500 series form really is the paradigm. It's the best selling form factor to date if you disregard the Zire. While the 1910 is doing well, if Palm Inc were to introduce a Palm with OS 5.2 (meaning virtual graffiti), 320x480 screen, 300 MHz X-Scale, Wifi, and license some damn 3D action game makers to make use of the D-Pad, all for $399, then you'd see a major flock back to Palm OS! Take a look. It would all make sense. Palm Inc announced they'd make a unit with an X-Scale in it during 2003 several months ago, the D-Pads are already here, they now realize sub-400 is the money market for high-end, and I don't know if you've understood this yet, but Palm Inc always waits for things to come standard until they decide to integrate them. Case and point, OS 5 with a faster processor and 320x320 "high density", trying to make it look like Sony was doing it wrong with "high resolution". They need to be spoon-fed transreflective and 320x480, half because it's standard in OS 5.2, and half because that's the only way they're going to make money in the high-end. Next point...

>And, no offense, but you people seem to have very
>little understanding of the business world. You
>think that having Zire make up the bulk of Palm's
>handheld sales is a good thing? Dear God, pass me
>the Vodka!

As someone else noted, it's not that I'm happy that it's the best selling Palm, I'm happy that it has sold so many and not bombed. The Zire pricepoint is what people are looking for in this down economy. 850,000 sales in just three months in 2002?

Come on, open your eyes. It's inevitable the Zire would be the best selling Palm SG device/PDA in history. Did you expect the TT to make that many sales? Not at $499. People are still into low-end. Until we generate enough sales in the low-end, the high-end will never be a big enough market to really sustain companies long enough. Palm SG needs high-end sales, and fast. They can't survive on Zire sales alone, and this is where the Wifi/320x480/m500 series Tungsten comes into play. So 850,000 sales of the Zire is very very good, but we have to be sure they see a compelling reason to upgrade, and with things in the mid-range market like the m130, it doesn't look too attractive. This again brings me to my next point...

>Didn't you just make my point with your example? 10%
>of 850,000 is a paltry 85,000. So Palm can not only
>expect a 90% decrease in sales, but when that 10%
>actually upgrades, they will give SONY their $$$?

Fair enough assumption. This is, of course, if nobody else ever buys the Zire. ;) Those Zire sales don't stop here. If it can sell 850,000 in three months during the holiday season, I'm sure they can gather up at least another million sales throughout 2003 and its holiday season. But still, even if those 10% see the need to upgrade to something over $300, it's not entirely true that they'll switch over to a PPC. Sony POSSIBLY, but not so much PPC. Brand loyalty has a certain effect on people. If they're satisfied with the Zire, they'll look for something else from Palm Inc. I can tell you that first hand. Now, don't forget people who upgrade to something less than $300 in the future. That should make up possibly another 15-20% of those Zire owners.

The last thing I want to point out is that if Microsoft loses enough money on PPC, don't think they'll keep at it. If they see there's not enough of a market for them and they can't turn the Pocket PC arena into the Desktop PC arena, they'll bail. I know people are afraid of Microshaft dropping the whole PPC deal and going with portable XP. This has as much chance as Palm dying.

Alright, this is the only time you'll ever hear it from me, so do a little copy-paste in Word and save it so you'll remember if I'm totally right or such an idiot. Here's my one official prediction for 2003, which is half based on Mike Cane's 2003 prediction.

Palm will release a unit with a huge 320x480 transreflective screen with a bright backlight, 300 MHz X-Scale processor, 64 MB RAM, real multimedia integrated, built-in Wifi, huge battery power with mAH out the ass enough to make a smartphone user proud, and all fit into an m515 with a stub antenna for $400, and you'll see many Sonyphiles/PPCaddicts have a major swallow of pride and buy their first Palm unit in years. Oh, and of course, Ed Hansberry will come up with another clever thing about how there's no Zen and it's not simple anymore. ;)

Alright, I'm free for comment.

-Bosco
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RE: Wow!
Foo Fighter @ 3/21/2003 12:37:34 PM #
> "h1910 price has been going UP since introduction."

How do you figure that? It started at $299, and hasn't changed.

"it's better to be a pirate than join the navy." - Steve Jobs

RE: Wow!
EdH @ 3/21/2003 2:01:26 PM #
>And Mike, come on man, have some faith!

That is why you are blind bosco - you've gotten religious with this.

>How do you figure that? It [1910] started at $299, and hasn't changed.

Actually has dropped a bit. $279-289 in most places. I think Amazon has a $25 rebate on their $299 list too.

Let Palm sell Zires all day long. THey need to sell millions per quarter to cover their SG&A. Their mix will kill them and Sony is killing them at the top end.

RE: Wow!
abosco @ 3/21/2003 2:11:46 PM #
>That is why you are blind bosco - you've gotten
>religious with this.

Religious, as in, can't think of anything else to say so I'll just pick a random sentence and say he's religious?

I've given you tons of paragraphs to respond to. If the best thing you can do is pick a single sentence with the word "faith" in it and say I'm religious, then I'm not the one who's blind.

-Bosco
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RE: Wow!
TooMuch @ 3/21/2003 3:29:42 PM #
"...Palm had this terrible quarter WITH THEIR NEW PRODUCTS !"
---

3rd Quarter, not 4th Quarter! The NEW PRODUCTS were released in October of 2002. Last time I looked at a calendar, October was still in the 4th Quarter.

RE: Wow!
TooMuch @ 3/21/2003 3:34:59 PM #
Oops, my bad. It is for "fiscal year" 3rd quarter. Does anybody know what Palm's fiscal calender is?

RE: Wow!
mikecane @ 3/21/2003 3:45:48 PM #
>>then you'd see a major flock back to Palm OS

Er, still no. Nothing on PalmOS can touch Textmaker for PPC. Even the latest QuickOffice, I think.

Palm really has to get itself and its developers in gear. They are eroding faster than I thought possible.

And to the fellow who cited the m5xx's flip lid -- that's a bloody leather FLAP. Gimme a break. (I have the same sort of crap on my CLIE S320. LID it is not!)

RE: Wow!
li77li @ 3/21/2003 4:13:44 PM #
>>great nation>>
dotn' listen your president what he says, listen to other than americans what they say about your nation.

RE: Wow!
abosco @ 3/21/2003 4:27:16 PM #
Yeah, I've heard quite a bit about TextMaker. Docs to Go 6 is supposed to deliver it all. I've never been a big fan of QuickOffice, but I've tried it out and it seems fairly decent. I'm just waiting for when these programs can multitask themselves without the need for Palm OS to multitask. It's a pain, even for a five second switch to close a Word document and open a spreadsheet with Docs To Go 5. It should be doable, especially since apps like AIM/AOL for Palm OS supports up to 20 IM conversations with alerts to each one within the application. Surely Dataviz can implement something like this.

-Bosco
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RE: Wow!
BlueAnon @ 3/21/2003 5:33:27 PM #
I hope DTG6.0 is not as disappointing as QO premiere. HTML is not .doc file format.

.. and do I hear change of tune? It seems now you are rooting for some form of 'multitasking'. Whatever happen to 'I only need to run one app' and changing to next apps instantenously because POS is so efficient. Multitasking is superfluous.

heh..

RE: Wow!
abosco @ 3/21/2003 7:16:28 PM #
Actually, I deleted the last part of my above comment. It said, "Note that I'm not exactly asking for multitasking, just some way to access two documents at one time without having to open and close each document one at a time."

Sure, call it multitasking. I don't care, as long as I can copy a piece of one document and add it to another quicker so I don't forget what I wanted to write. Fine, make the opening and closing process quicker. Integrate mid-app multitasking. I don't care as long as I can access two at once quicker.

Just for the record, I'm still skeptical about fully multitasking a PDA. The integration of it in OS 6 can make or break PalmSource.

-Bosco
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RE: Wow!
BlueAnon @ 3/21/2003 7:24:02 PM #
As documents processing become more involved, you won't only want/need to copy paste text only, but also picture, graphs, sounds, numbers etc...

It won't be uncommon soon to flip back and forth between some multimedia apps and a text processor to create a web page from a handheld.

RE: Wow!
Foo Fighter @ 3/21/2003 9:28:23 PM #
> "And to the fellow who cited the m5xx's flip lid -- that's a bloody leather FLAP. Gimme a break. (I have the same sort of crap on my CLIE S320. LID it is not!)"

Well I hate to beat a dead horse, but where are PPCs with flip covers or leather flaps? Where? Every time I slip my Axim into my pocket, I feel like I'm shoving a wad of Oscar Meyer Bologna in my pants. PPC vendors still haven't figured out how to design a practical PDA. The HP 1910 comes closer than anything before it. But I still don't see form factors from the PPC camp that offer the design ingenuity or practical utility of PalmOS devices.

"it's better to be a pirate than join the navy." - Steve Jobs

RE: Wow!
Scott R @ 3/21/2003 10:34:49 PM #
"And to the fellow who cited the m5xx's flip lid -- that's a bloody leather FLAP. Gimme a break. (I have the same sort of crap on my CLIE S320. LID it is not!)"

Who cares how "flimsy" it is? The point is that for most people who buy an m-series, it's good enough and it's all they use. Stick it in your pocket with the leather flap lid and you've got enough protection for most people's needs. With this leather flap lid, you have a small, light, pocketable device. Even with the 1910, as small and light as it is, you have to add bulk by adding a sleeve.

Scott

RE: Wow!
talos4 @ 3/21/2003 11:12:00 PM #
Apparently no business school types here.

- Selling 850K of any brand new product is impressive. Palm has apparently found an apparently untapped market and fulfilled a need - most of the people who bought Zires probably wouldn't ever had considered a handheld purchase except for the price. And don't forget the higher margins on the millions of accessories that will be sold down the road.

- Opened up a whole new consumer base that will now be predisposed to buying higher-end Palm devices when they are older/richer. Again smart, though the impact of this won't show up for a couple of years.

- The loss being thrown around the thread is the GAAP loss that includes restructuring and other one-time charges. It looks like the tangible loss is $23M, which is only about 11% of revenue.

R

"A fanatic is one who can't change his mind and won't change the subject." -- Winston Churchill

RE: Wow!
BlueAnon @ 3/22/2003 12:01:56 AM #
Revenue is going sideways, no profit to be seen, and market share is going down year by year. Meanwhile the competitor are going the otherway around.

That's what people see, instead of "it's only 11%"

RE: Wow!
abosco @ 3/22/2003 12:27:51 AM #
From what I've read, Palm and Sony are in the black when it comes to PDA sales. According to this article, so is PalmSource.

Let me ask you... which PPC licensees are making money off their product lines? Is Microsoft? I wouldn't be surprised if all of them were red, really.

-Bosco
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RE: Wow!
masitti @ 3/22/2003 12:55:43 AM #
Foo Fighter, the h1910 is smaller than the Palm m5xx series. Hard to believe, but true. I am glad that it doesn't have a cover... it would increase its size. I just put it in my pants, with the screen facing my leg, and the screen is protected from bumps. Haven't had a scratch or anything. Point is, the Dell is a building block. The iPAQ is the tool. :)

------------------------
Mario Masitti
http://community.webshots.com/user/mariowc
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