palmOne Reports Q3 FY05 Results

palmOne today reported revenue of $285.3 million for the third quarter of fiscal year 2005, ended Feb. 25, up approximately 18 percent from the $242.5 million reported during the comparable quarter a year ago.

Net income was $4.4 million, or $0.09 per diluted share, measured on a Generally Accepted Accounting Principles, or GAAP, basis and reflecting certain non-recurring employee-separation costs. This compares to a loss in the year-ago period of $9.3 million, or $0.20 per share.

Net income in the third quarter of fiscal year 2005, measured on a non- GAAP basis, totaled $10.6 million, or $0.21 per diluted share, excluding the effects of amortization of intangible assets and deferred stock-based compensation and employee-separation costs. This compares to a non-GAAP net income in the third quarter of fiscal year 2004 of $0.6 million, or $0.01 per diluted share, which excluded the effects of amortization of intangible assets and deferred stock-based compensation and restructuring charges.

"We executed well and delivered strong revenue growth and gross margin during the quarter. Treo smartphone sell-through rose by almost 50 percent, and our share of the handheld-computer market expanded around the world," said Ed Colligan, palmOne president and interim chief executive officer. "Going forward, we're committed to investing in our product- development engine and software-application differentiation. We'll also work to accelerate the pace at which we bring our smartphones to new carriers and higher-speed networks."

Colligan noted the following financial highlights:

• Revenue rose approximately 18 percent, marking the seventh consecutive quarter of year-over-year growth;
• Gross margin rose to 31.0 percent in the quarter from 28.9 percent in the comparable quarter a year ago;
• Operating margin was 1.8 percent, and non-GAAP operating margin was 4.0 percent;
• Net income was $4.4 million, and non-GAAP net income totaled $10.6 million; and
• The company generated $21.5 million in cash from operations in the quarter.

During the quarter, palmOne accomplished the following:

• Expanded smartphone sales to include the Treo 650 across the Cingular Wireless network in the United States, building upon sales of Treo 600 smartphones and taking advantage of Cingular's high- speed Enhanced Data for Global Evolution, or EDGE, network, the nation's fastest data network;
• Expanded the relationship with Orange in the U.K., France and Switzerland to include the Treo 650 smartphone, building upon Orange's previous sales of Treo 600 smartphones. Orange is expected to begin selling the Treo 650 in the fourth fiscal quarter;
• Signed an agreement with Telecom Italia Mobile, or TIM, to distribute the Treo 650 smartphone in Italy. TIM is expected to begin selling the Treo 650 in the fourth fiscal quarter;
• Announced the sale of 1.5 million units of the Tungsten E handheld computer in 14 months on the market. The Tungsten E consistently has been the best-selling handheld in the United States and represented 20 percent of all U.S. handheld sales since its introduction, according to The NPD Group; and
• Shipped approximately 938,000 Zire, Tungsten and Treo family devices. Cumulative shipments to date total approximately 29.9 million units.

  The company also provided guidance for the fourth fiscal quarter of 2005, which ends June 3, 2005, as follows:

  • Revenue will be between $320 million and $330 million, which represents 22 percent growth over the year-ago period, measured at the midpoint of the range. This guidance assumes that certain products originally expected to ship early in the fourth quarter will ship later in the fourth quarter or move to the first quarter of fiscal year 2006;
  • Smartphones are expected to generate approximately 50 percent of anticipated net revenue;
  • Gross margin is expected to be in the range of 29.5 percent to 30.5 percent;
  • Operating expenses on a GAAP basis, which includes approximately $2.5 million for amortization of intangible assets and stock-based compensation, are expected to be in the $79 million to $81 million range. On a non-GAAP basis the company anticipates operating expenses to be in the range of $76 million to $78 million, which includes increased investments in our product-development engine;
  • Earnings per diluted share on a GAAP basis in the range of $0.20 to $0.27 and on a non-GAAP basis in the range of $0.25 to $0.32; and
  • Continued positive cash flow from operations.
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