Palm Reports Preliminary Q3 FY09 Results

PalmPalm, Inc. today reported preliminary results for its third quarter of fiscal year 2009, which ended Feb. 27, 2009.

The company announced that it expects to report revenues for the third quarter of fiscal year 2009 in the range of $85 million to $90 million. The revenue declines vs. the company's second quarter of fiscal year 2009 and third quarter of fiscal year 2008 are the result of reduced demand for Palm's maturing legacy smartphone products, the challenging economic environment and later-than-expected shipments of the Treo Pro in the United States. The company expects declining revenues and continued margin pressure from its legacy product lines in the fiscal fourth quarter.

"The much-anticipated launch of the Palm Pre remains on track for the first half of calendar year 2009, but as expected we've got a difficult transition period to work through," said Palm President and Chief Executive Officer Ed Colligan. "Despite the challenging market environment, the extraordinary response to the Palm Pre and the new Palm webOS reaffirms our confidence in our long-term prospects and our ability to reestablish Palm as the leading innovator in the growing smartphone market."

Palm stated that cash used in operations for the quarter is expected to be between $95 million and $100 million. The company's cash, cash equivalents and short-term investments balance is expected to be between $215 million and $220 million at the end of the third quarter.

Although Palm believes it has sufficient cash, cash equivalents and short-term investments to meet its working capital needs under its current operating plan, the company intends to strengthen its working capital position given the challenging economic environment and the opportunity to drive both the launch of the Palm Pre and future product-development efforts. The company is currently evaluating options in this regard, including the exercise of its right to direct the remarketing of a portion of the common shares underlying the Series C preferred stock and warrant units owned by Elevation Partners. Palm is entitled to retain any net profits realized from such remarketing.

Separately, Palm indicated that since it expects to periodically provide new software features free of charge to customers of its Palm webOS products, including the recently announced Palm Pre, it will recognize the revenues and cost of revenues associated with Palm webOS product sales on a straight-line basis over the product's estimated economic life of 24 months. The company will be recording deferred revenues and deferred cost of revenues on its balance sheet, and amortizing them into earnings on a straight-line basis over the estimated economic product life of 24 months. The company will continue to expense engineering, sales and marketing costs as they are incurred. This accounting treatment will have no impact on cash flow. A more detailed discussion of this accounting treatment can be found on Palm's Investor Relations website.

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Rather huge miss

SeldomVisitor @ 3/3/2009 1:55:53 PM # Q
And all sorts of nastiness to come still - REDUCED revenue for the next quarter, for example.
RE: Rather huge miss
Gekko @ 3/3/2009 3:14:47 PM # Q

what do your yahoo chat room friends say?
RE: Rather huge miss
SeldomVisitor @ 3/3/2009 3:46:21 PM # Q
Nothing much - stock price changed very minimally (10-ish percent - believe it or not that's actually a "non"change for a volatile stock like Palm!).

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burning cash?

Gekko @ 3/3/2009 3:26:59 PM # Q
is it just me or are they burning a whole lot of cash with not a whole lot left?
RE: burning cash?
SeldomVisitor @ 3/3/2009 3:45:20 PM # Q
They are burning a whole lot of cash with not a whole lot left.

Remember - they JUST got ANOTHER 100 megabucks from Elevation Partners, without which they would be approaching insolvency.

As it is, they're saying they need to get more cash, maybe by issuing more share (dilution) or, if anyone will lend it, by taking out further loans (ain't no way, IMHO).

Maybe they'll give the keys to the company to Elevation and ask for another chunk; Elevation Partners might be dumb enough to do it, too.

RE: burning cash?
numlock @ 3/3/2009 4:07:49 PM # Q
whatever happened to those auction rate securities they had tied up?
RE: burning cash?
SeldomVisitor @ 3/3/2009 4:16:55 PM # Q
RE: burning cash?
freakout @ 3/3/2009 4:36:52 PM # Q
Wow. You sure seem to keep close tabs on Palm's financials, SV. Exactly how much stock are you shorting, anyways? That post-CES bump must have been killer for you.... lol
RE: burning cash?
SeldomVisitor @ 3/4/2009 4:00:09 AM # Q
Did you notice the short interest statistics before and after the CES show?

Here ya go - type in Palm and hit Search:


Notice the change on January 15th.

Shows how much you know about...Palm financials...

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Non Issue

surfmaniac @ 3/3/2009 7:04:29 PM # Q
Forget the nabobs on this board, none of this is news that wasn't expected... the Pre (and succeeding products based on Web OS) wil lbe huge and anyone who buys this stock at these levels will be VERY happy in about a year... (I know, I backed up the dumptruck at 2 and change.)

Rubenstein and the Apple/Nokia gang will transform this company and get it going into a totally new and much more profitable direction...

Just my 2cc...

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I don't see this as unusual.

bhartman34 @ 3/4/2009 7:38:52 AM # Q
1) Smartphone sales are down across the board. This would obviously also include Palm.

2) Those of us who have been following Palm products over the long haul have seen this before. People refrain from buying the latest current version of a product in anticipation of the next product coming out. (Anyone else remember what happened to the m505 when the m515 was announced, or, for that matter, what happened to the Palm IIIc when the m505 was announced?)

The only thing really unusual about this, from my perspective, is the position Palm is in right now. They need the Pre to be a big hit.

I will say, however, that the long timespan between the CES announcement and the probable release date (which I'm guessing will happen in late May or early June, since they've said "first half" of 2009,, and they can't afford to rush the Pre out) isn't helping Palm, in the short term. Back when the m505 or m515 were rolled out, Palm could take a short-term hit while they waited for sales to pick up after the new model's intro. SV might be right that they can't sustain that kind of hit right now. I hope they can, but it's not 100% certain.

That said, I certainly wouldn't count Palm out completely. The Pre caused a lot of excitement, and you could make the argument that at least some of the downturn Palm is experiencing now will be made up for in the wake of the initial release of the Pre. (Of course, time will tell if the Pre is really a success once both the critical and user reviews come in.)

RE: I don't see this as unusual.
hkklife @ 3/4/2009 11:43:33 AM # Q
Well, Palm has traditionally done this quite a bit.

They rode the V & Pilot/III lines far too long (until spring 2001) with few changes. So after going through the cruicial year of 2000 when Palm's glory days started to fade as color and mp3 playback became kinda important handheld features(that was when the Compaq iPaq was kicking arses and taking names and ) with no compelling new product, they jumped the gun on the m500 announcement in early '01. This led to an Osborne effect with tons of IIIxe/Vx/IIIc/m105 handhelds (all of which were overpriced and outdated by that point) sitting in warehouses and on store shelves unsold.

Rumor has it that Sprint has a large amount of unsold Treo 800w stocks still piling up, despite an effective price cut to $99 for that device. That's why they replaced the 800w so quickly with the CDMA Pro, so that they could lead into the Pre with an attractive, nicely spec'd device bearing the Palm branding and not a turd like the 800w. Maybe it's time for Sprint to pull a Verizon and do a "buy 1, get 1 free" for the 800w?
Pilot 1000->Pilot 5000->PalmPilot Pro->IIIe->Vx->m505->T|T->T|T2->T|C->T|T3->T|T5->Zodiac 2->TX->Verizon Treo 700P->Verizon Treo 755p->?

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The Tale of Palm

Gekko @ 3/4/2009 11:24:29 AM # Q

Ok, here are facts: A company pre-announces grim, at-death's-door guidance for the current quarter; revenue more than 50 percent below expectations; a cash burn-rate far worse than anyone thought that could force the company into desperate times to raise new capital, at the expense of its already beleaguered shareholders; still no word on a release date or price for its hot new product; and another anticipated release will likely be delayed; and it continues to drown in a murky soup of red ink.

RE: The Tale of Palm
CFreymarc @ 3/4/2009 11:45:18 AM # Q
I'd like to see you put your money where your mouth is.
RE: The Tale of Palm
Gekko @ 3/4/2009 4:33:15 PM # Q

"Everyone knows that businesses make a lot of money in good times, some money in OK times and sometimes not much money in bad times. But if you plan your company around only the good times, you end up in a lot of trouble." - Mike Maddox, CFO, Wynn Resorts
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