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Palm Warns of a Q2 Loss, Cites Certification Delays

Palm Inc today issued a preliminary Q2 FY2008 results statement after the close of the stock market. In the press release Palm warns its early financial assessment for the current quarter will come in under previous guidance, which will likely result in a loss for the quarter. Full results will be reported on Dec. 18.

Palm says the projected revenue shortfall is primarily due to a delay in shipping an unnamed product they has expected to have certified within the quarter. While we can't get a confirmation, the delay is likely the debut of the Treo 755p on Verizon which has been in rumor and pre-announcement limbo since June.

Palm's statement reads:

Based on preliminary financial data, Palm expects revenue to be in the range of $345 million to $350 million for the second quarter of fiscal year 2008. This compares with earlier guidance of $370 million to $380 million provided Oct. 1, when Palm reported its first quarter fiscal year 2008 results. The revenue shortfall is primarily due to a delay in shipping a product that the company had previously expected to have certified within the quarter.

Gross margin is expected to be in the range of 29.3 to 29.8 percent on a GAAP basis and 29.5 to 30.0 percent on a non-GAAP basis, compared with earlier guidance of 33.3 percent to 33.8 percent on a GAAP basis and 33.5 percent to 34.0 percent on a non-GAAP basis. The gross margin reflects an unforeseen increase in warranty repair expenses during the quarter, a shift in product mix that included higher-than-expected shipments of Palm Centro smartphones and the delayed product shipment.

Operating expenses are expected to be in the range of $146 million to $149 million on a GAAP basis and $121 million to $124 million on a non-GAAP basis.

Loss per diluted share is expected to be in the range of $(0.22) to $(0.24) on a GAAP basis and $(0.08) to $(0.10) on a non-GAAP basis. Loss per diluted share has been calculated on a GAAP and non-GAAP basis utilizing an estimated 40 percent effective tax rate. The determination of the effective tax rate for the second quarter of fiscal year 2008 will likely vary from the 40 percent utilized in these calculations and will be included in the full results announced on Dec. 18.

"We are disappointed that we did not get a key product certified for delivery in the quarter, but we are focused on realizing the long-term benefits and opportunities that inspired our transaction with Elevation Partners. We are pleased with recent improvements in our product delivery engine, the early success of Palm Centro, and the significant progress we've made on our strategic platform," said Ed Colligan, Palm president and chief executive officer.

Full results for the company's second quarter of fiscal year 2008 will be announced on Tuesday, Dec. 18, at the close of the market at 1 p.m. Pacific Time, and a conference call will follow at 1:30 p.m. Pacific/4:30 p.m. Eastern. The dial-in number is 866.314.5232 in the United States and 617.213.8052 for international callers. There is no passcode required for the call.

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Anyone wanna take a crack at what Palm's '08 line will look like?

hkklife @ 12/6/2007 10:20:58 PM # Q
My guesstimated Palm lineup for 2008:

Q1 '08:

-755p (Verizon)

-GSM Garnet Centro (AT&T + numerous carriers worldwide)

Q2 '08:

-Treo 800w (Verizon & Sprint)

-Treo 500(?)quad-band variant for US market (AT&T)


What ELSE is there? Is there gonna be anything past that? At this point it's entirely possible and probably that the Centros are going to be THE final Garnet-based devices.

Although, I wouldn't put it past Palm to release a mildly refreshed Centro 2 later in '08 that puts an emphasis on music & "navigation" by way of having, say, a 4gb internal flash drive for music, a 3.5mm headphone jack and the Google Mobile Maps My Location "fix" in ROM. Y'know, like how they called a fixed T|T or 700p an entirely new model (T2, 755p) with few if any new features.

Pilot 1000-->Pilot 5000-->PalmPilot Pro-->IIIe-->Vx-->m505-->T|T-->T|T2-->T|C-->T|T3-->T|T5-->TX-->Treo 700P

RE: Anyone wanna take a crack at what Palm's '08 line will look like?
theog @ 12/6/2007 10:51:42 PM # Q
What else? Wow... I mean, aren't you waiting for the new TX? How about a foolio?

Really... you are so negative, can't you see they will fill the gaps in your time line with a new linux OS device in Q2, Q3, and Q4 of 2008! Honestly, I can see all of this happening... ok, I lied... but it sounded good.

Vote for John Kerry... best man for the job.

RE: Anyone wanna take a crack at what Palm's '08 line will look l
Gekko @ 12/6/2007 10:54:58 PM # Q

1. Fooleo II
2. Palm T7 Handheld
3. 8-Track Cassette Player
4. VCR
5. 3.5" Floppy Disk Drive
6. Buggy whip
7. Slate Tablet
8. Cave Painting Kit


RE: Anyone wanna take a crack at what Palm's '08 line will look like?
2xs @ 12/7/2007 3:10:17 AM # Q
but remember, that cave painting kit wont have wifi... no one needs wifi!

Palm Professional -> Palm III -> Palm Vx -> Palm m505 -> Palm TT2 -> Palm TT3 -> Palm TX -> Treo680
RE: Anyone wanna take a crack at what Palm's '08 line will look l
xpan @ 12/7/2007 9:59:10 AM # Q
Gekko, you should be watching you mouth! Palm might indeed think that the cave painting kit is a good idea!



---
"home is where my computer is..."

RE: Anyone wanna take a crack at what Palm's '08 line will look l
Poopie @ 12/7/2007 4:41:01 PM # Q
- Firmware update for Treo 680
- New colors for Centro
- New Centro model with different font on Centro keyboard
- Leather Centro case
- Vista X64 support for Palm Desktop
- Redesign of http://mobile.palm.com
RE: Anyone wanna take a crack at what Palm's '08 line will look l
joad @ 12/10/2007 3:33:55 AM # Q
1) GREEN Treo 755

2) Yet another stupid case that barely works

3) "Special Edition" screen protectors

4) 2-pack spare batteries in special colors

5) New GPS arrangement with Magellan

6) Announcement that next handhelds will come with *Xd* cards, (and then after that Memory Stick...).

7) Stylus PENCILS

8) Tungsten X priced at $99 (free Fooleo with purchase)

9) 17 more bugfixes for Versamail

10) 1 firmware fix for some lucky device

11) and a partridge in a pear tree.............................

|
**Another vote for a >100MB RAM Treo**

Reply to this comment

Palm can't compete in the low end phone market.

craigdts @ 12/6/2007 11:01:23 PM # Q
How many companies report "included higher-than-expected shipments of Palm Centro smartphones" as bad news?

The writing has been on the wall for some time now (remember sagio?).

RE: Palm can't compete in the low end phone market.
wildmantrader @ 12/6/2007 11:07:46 PM # Q
If all you naysayer’s are so convinced of Palm demise, please short at will.

Fu**k*** lightweights.

RE: Palm can't compete in the low end phone market.
ChiA @ 12/7/2007 5:54:03 AM # Q
Presumably wildmantrader is a Palm shareholder.

It'll explain why twildmantrader is so ratty about the naysayer talk.

Reflecting over the past ten years:

- companies have appeared from nowhere to offer serious, superior competition to Palm's products:
RIM, HTC Samsung. These companies are making more compelling products than Palm itself.

- Palm has lost it's international marketshare in the age of globalization, whilst its competitors have gained international marketshare, I see they're going to be selling Blackberrys (Blackberries?) in Russia now. PalmPilot was the buzzword of the day a decade ago, today it's the Blackberry. Better products were available in international markets and natural selection forced Palm away.

Palm has been kept alive by the US cellular companies; Unfortunately for Palm the US carriers now appear to be moving towards international practices. The carriers have been falling over themselves to profess how open their networks are. Consequence? Those nice handsets the European and Asian consumers have been enjoying will now enter the US more rapidly. Good news for Nokia and the US consumer, bad news for Palm.

Palm has failed to respond to end user demand, a fatal flaw. We are a couple of weeks away from 2008 yet Palm remains the only major smartphone company that doesn't offer a device with integrated wi-fi. It seems Palm's incapable of integrating it into their smartphone line but others are able to put wi-fi into their handhelds, games consoles, cameras, printers etc.

Palm cancelled a major product just a couple of weeks before launch. That is not a sign of a company in good health.


So wildmantrader, you've accused the naysayers of being convinced Palm will wither away.

Let's see if you're the heavyweight you imply you are and demonstrate how Palm will succeed

RE: Palm can't compete in the low end phone market.
TooMuch @ 12/7/2007 8:53:35 AM # Q
Palm is paying the price for bad decisions related to managing its OS. All the hardware listings are just symptoms of the real illness. If the new OS arrives in early 2009, don't be surprised to see Palm become the "big comeback story of the year in 2009 or 2010!" It certainly wouldn't be the first company to comeback from an antiquated OS to a darling stock story.

RE: Palm can't compete in the low end phone market.
rmhurdman @ 12/7/2007 9:44:22 AM # Q
Don't give wildmantrader too hard a time. If he really is a stockholder, since the day after the Elevation Partners deal closed, he's lost over 31% ($9.59 down to $6.59). I'd be sour, too.

Boy, Elevation Partners have done anything BUT elevate Palm.

RE: Palm can't compete in the low end phone market.
JayC3 @ 12/7/2007 10:06:42 AM # Q
I can't seem to understand why a lot of people seem to compare Apple's history with Palm. There is no guarantee that Palm will turn out the same fate as Apple when they release their new OS. As to what I understand, it was not OS X that saved Apple, but the iPod. The iPod gave them the "halo" effect that reflected to their other products that in turn gave them the advantage in people's mind that if the iPod is good, then the Mac/OS X must be good also. It was the iPod that gave them the cash to keep developing on the Mac and the iPod. I am not sure what "iPod" product Palm has, if they do, they better get it out fast.

RE: Palm can't compete in the low end phone market.
retrospooty @ 12/7/2007 10:21:21 AM # Q
"Palm is paying the price for bad decisions related to managing its OS. All the hardware listings are just symptoms of the real illness. If the new OS arrives in early 2009, don't be surprised to see Palm become the "big comeback story of the year in 2009 or 2010!" It certainly wouldn't be the first company to comeback from an antiquated OS to a darling stock story."

That all sounds good on paper (or digital text as it may be) but you're scenario leaves out a very VERY impotant detail. Palm cannot execute to plan. Lets just for a minute, assume they do and actually release the next OS in 18 months. The next gen WinMobile will be out, the next gen (or 2 gens) of iPhone will be out. Google's open source OS deal will be out. What can Palm do to compete with any of that? To compete with all of that, the next gen Palm OS will have to be better or massively cheaper. Do you really think the braniacs left at Palm can do a better OS than the next gen Microsoft, Google and Apple? Or compete pricewise with the giants?

Now remember that Palm cannot execute to plan, and releases seriously buggy products at first - I would presume that it will take an additional 18 months of development after release to get the next gen OS to be relatively useable enough for the masses to not rip it apart when comparing to competing OS's and devices... By then, what will the competition have out?



RE: Palm can't compete in the low end phone market.
mikecane @ 12/7/2007 11:16:35 AM # Q
Palm must have been counting on the Foleo to give them an iPodish halo effect.

Instead of a halo, they got horns.

RE: Palm can't compete in the low end phone market.
nastebu @ 12/7/2007 12:10:10 PM # Q
The iPod didn't save Apple. If you want to give credit to a specific product, it's probably the original iMac. Check out the Wikipedia history, which is very good.

As far as Apple's lessons for Palm, it's something like return to your roots, rely on visionary executives, and take big chances. Ironically, that all sounds like the foleo. :-)

RE: Palm can't compete in the low end phone market.
TooMuch @ 12/7/2007 5:07:40 PM # Q
"Don't give wildmantrader too hard a time. If he really is a stockholder, since the day after the Elevation Partners deal closed, he's lost over 31% ($9.59 down to $6.59). I'd be sour, too.
Boy, Elevation Partners have done anything BUT elevate Palm."

PALM Inc. paid out $9 per share in dividends on that day too.

RE: Palm can't compete in the low end phone market.
TooMuch @ 12/7/2007 5:12:09 PM # Q
"Palm cannot execute to plan...Google open source will be out..."

You sound like the Mac beaters in 1998 who compared Apple with the insurmountable battle with Microsoft, Sony, etc. Remember, "Apple is dead...they can't deliver on Mac because of their obsolete OS, the Newton, etc."

RE: Palm can't compete in the low end phone market.
SeldomVisitor @ 12/7/2007 5:29:45 PM # Q
PALM is not Apple.

RE: Palm can't compete in the low end phone market.
retrospooty @ 12/7/2007 5:44:03 PM # Q
"You sound like the Mac beaters in 1998 who compared Apple with the insurmountable battle with Microsoft, Sony, etc. Remember, "Apple is dead...they can't deliver on Mac because of their obsolete OS, the Newton, etc.""

Apple and Palm are not the same at all...

Apple, when they were down and out...

1. was a medium-small company
2. had an extremely loyal fanbase (those that were left)
3. had a very talented engineering group.
4. had no leadership (until Jobs came back)
5. had great marketing

Palm now

1. Is a very small company
2. Has a fanbase that is largely turning against them.
3. has a useless engineering group that makes excuses at 10x the rate tehy make innovations of fixes.
4. has no leadership
5. has no marketing

Not to say that they cannot get these things, but it doesnt look likely. There is a whole mentality set up to underachieve at Palm and it will take years and years to get rid of it.... I dont think Palm can last that long IF they started, and they have not started.

RE: Palm can't compete in the low end phone market.
mikecane @ 12/7/2007 8:41:21 PM # Q
>>>You sound like the Mac beaters in 1998 who compared Apple with the insurmountable battle with Microsoft, Sony, etc. Remember, "Apple is dead...they can't deliver on Mac because of their obsolete OS, the Newton, etc."

Fine. If that's the only fekkin way we can get rid of Colligan, email Jobs to buy the damned company!

RE: Palm can't compete in the low end phone market.
TooMuch @ 12/8/2007 7:16:07 AM # Q
"Apple and Palm are not the same at all...

Apple, when they were down and out...

1. was a medium-small company
2. had an extremely loyal fanbase (those that were left)
3. had a very talented engineering group.
4. had no leadership (until Jobs came back)
5. had great marketing

Palm now

1. Is a very small company
2. Has a fanbase that is largely turning against them.
3. has a useless engineering group that makes excuses at 10x the rate tehy make innovations of fixes.
4. has no leadership
5. has no marketing"

-----------

Yes, Palm is NOT Apple, but you are still missing the point that the issue is OS, OS, OS!!! The success of Palm primarily has always been about the OS. I can't help but laugh at the quoted comparison above as a rebuttal to the statement that Apple was said to be DOOMED in 1998 because (mainly) it had an obsolete OS compared to "Windows" (say it kinda spooky). The comparative list above, though missing the point, doesn't prove anything...
1. Size of company...what? Since when does the current determination that a "small company" disqualify you from future success?
2. Apple had loyal fanbase (those left) vs. Palm fanbase turning against them...Kind of sounds like the same point.
3. Engineering comparison. Overstated. Apple mostly had hard-headed engineers who said "it can't be done that way" to everything that Jobs would demand in the days ahead. Many of them were fired.
4. Leadership comparison. Agreed.
5. Marketing comparison. Greatly overstated.
The future can change for Palm. If you don't believe it, why would you waste your time commenting here? Do you really think that 1/4 billion dollars needed to be wasted on this DOOMED company by EP?
And BTW...Palm's future to hinges on OS.

RE: Palm can't compete in the low end phone market.
SeldomVisitor @ 12/8/2007 7:32:15 AM # Q
> ...Do you really think that 1/4 billion dollars needed to be wasted on
> this DOOMED company by EP?...

Having lots of bucks does not make one an investing genius. People make mistakes.

Oh.

Wait.

That's right.

A Rock Star bet on PALM.

Yes, there must be a future there.

RE: Palm can't compete in the low end phone market.
TooMuch @ 12/8/2007 8:47:56 AM # Q
Come on now SV. You know that "rock" is here to stay!

RE: EP Deal may be smarter than I thought
craigdts @ 12/8/2007 9:25:06 AM # Q
I never understood it. It didn't make sense to dump all your cash, especially when you are not making money.

But, I think Palm board and management knew the company is doomed, and they figure that we should go ahead and take the cash. That way when we go bankrupt the banks can foot the bill. Who said palm doesn't care about its shareholders? Oops, that's me.

RE: Palm can't compete in the low end phone market.
retrospooty @ 12/8/2007 9:33:35 AM # Q
"Yes, Palm is NOT Apple, but you are still missing the point that the issue is OS, OS, OS"

Palm has alot bigger issues than just OS. Palm has Engineering engineering engineering as the major problem.

but in the end, you are correct it could possibly be saved several years down the road by totally rebuilding the engineering and management cores from the ground up - not likely, but possible. Palm is still a strong brand and if 2-3 or even more years down the road, if they have some compelling products, people will buy them. Thats a lot of if's though.

RE: Palm can't compete in the low end phone market.
SeldomVisitor @ 12/8/2007 10:24:48 AM # Q
Craigdts - I think PALM thought close to those thoughts exactly.

When you have a cash-rich company with no future (*) you can let the cash sustain the company for a long long time, then have it go away.

Or you can TAKE the cash and have it go away somewhat sooner.

Somehow - this looks like a no-brainer to me - and a VERY good suggestion by whomever came up with the idea (**).

====================

(*) PALM itself about a year ago decided the BEST thing they could do for the company was sell it - then spent MONTHS trying to do just that with only ONE taker worth noting - Elevation Partners and their silent equity partner. And even THAT deal was only for about a 10% premium over the then-current price - noise-level for a dynamic-price stock like PALM. And then that private equity partner of EP said "No thanks - nevermind" only a couple days later! (***)

(**) So the 100% takeout deal fell through a couple days after it was offered. At that point SOMEONE came up with the convoluted idea of PALM selling only 25-ish% of itself to EP, but doing it by forming another corporation and MERGING with that corporation, thus allowing a ==tax-free== Return of Capital to be distributed to its shareholders - that's just an a-MAZ-ingly good idea - otherwise the $9 back would have been a taxable dividend for everyone getting it.

(***) This is not conjecture nor opinion - PALM outright said just this in one of their earlier SEC filings on the history behind The Transaction (though they used corporate-speak like "business combination transaction" rather than "sale"...giggle).

RE: Palm can't compete in the low end phone market.
SeldomVisitor @ 12/8/2007 10:26:11 AM # Q
> ...Palm is still a strong brand...

I actually believe that point is very debatable.

RE: Palm can't compete in the low end phone market.
ChiA @ 12/8/2007 3:09:22 PM # Q
I was a close observer of Apple's problems during the mid 90s.

Apple then (and now) unlike Palm, had several billion dollars in cash even during its deepest depths of loss.

The Palm team also seem to lack the drive and hunger to make, as Steve Jobs puts it, "insanely great products". The small incremental improvements to the Treo range is testimony to that.

Palm made the mistake of trying to branch out into a new sector rather than concentrating on making its core smartphones the best of breed.

When Jobs returned to Apple he made sure Apple concentrated and enhanced its core products whilst getting rid of distracting sidelines. Once the core was profitable Apple was once again in a position to explore other avenues such as the iPod.

Palm trying to introduce the Foleo whilst struggling with its average Treo line was like someone trying to add an extension to a house whilst the ground floor was on fire.

The postponement of the Foleo is at least a sign of hope for Palm.

RE: Palm can't compete in the low end phone market.
retrospooty @ 12/8/2007 6:36:59 PM # Q
"> ...Palm is still a strong brand...

I actually believe that point is very debatable."

I dunno about that... 9 out of 10 people I meet still call all HP
s PPC's, WM phones, and any other brand including Palm a "Palm pilot"

I don't think Palm has the brain power, management, or motivation to do anything worthwhile at all, but if at some point years from now someone smarter bought the brand and released a "Palm" branded device with a good feature set I think it would sell.

RE: Palm can't compete in the low end phone market.
craigdts @ 12/8/2007 9:34:34 PM # Q
"Palm made the mistake of trying to branch out into a new sector rather than concentrating on making its core smartphones the best of breed."

The sad thing about your statement (which proves your point about Palm vs. Apple) is that Palm ACTUALLY thought they were concentrating on their core smartphone market by going from the 650, 700, 755 and Centro. It is truly embarrassing the lack of talent at Palm.



RE: Palm can't compete in the low end phone market.
SeldomVisitor @ 12/9/2007 7:58:57 AM # Q
W.r.t. the PALM brand being powerful or whatever...

My point was there is a different customer set now - walk-ins to retail phone stores, "surf-ins" to online retail outlets (including carriers), etc. PALM in no way, shape, or form is the dominant player THERE and thus "the name" is, in general, NOT a seller.

Are there (a decreasing number of) legacy-PALM-buyers who still dote on the PALM name?

Yes - sure - of course. There are even a number who still post that the PALM user interface (and experience) is vastly superior to their competitors. Some who haven't even SEEN the competition and what they've already come up with, much less what they are coming up with as we type.

So, I think the thought that the PALM name somehow remains a (significant) selling point is...debatable...

RE: Palm can't compete in the low end phone market.
rmhurdman @ 12/10/2007 10:31:08 AM # Q
The heavyweights have spoken:

Palm cut to “sell” at UBS

RE: Palm can't compete in the low end phone market.
mikecane @ 12/10/2007 12:31:19 PM # Q
If they fire Colligan it will switch to Must Buy.

Do it, Elevation! Dump him!

Reply to this comment

My favorite comment was...

joeags @ 12/6/2007 11:47:46 PM # Q
the increase in warranty repair expenses. Based on how many people have commented on returning multiple palms in for warranty repair over the past few years, I'm surprised it took this long for those expenses to go up. But for Palm to report this as the first reason for a change in gross margin must mean that they had a large increase in the number of units returned. They talked the previous year of a 1.5% increase in warranty expense, which was because they moved towards smartphones, but this quarter must have been pretty major...

RE: My favorite comment was...
SeldomVisitor @ 12/7/2007 8:45:57 AM # Q
Yeah, that comment was unexpected - we know about the horrendous returns of prior Treos, but noticing it on the books NOW suggests something behind-the-scenes - like sending off Treos to a carrier or something and taking them back BEFORE they got sent off to end-customers or something.

I hope an analyst asks about this particular statement during the earnings call on the 18th since it seems unusual.

RE: My favorite comment was...
rpa @ 12/7/2007 10:18:31 PM # Q
I was surprised by this admission too. If you look at user reviews for the Treo 680 on CNet, the comments are generally very negative so maybe we should not be so surprised. I was ready to buy one until I read their reviews.

rpa
Palm Pilot >> Palm Tungsten E user
RE: My favorite comment was...
craigdts @ 12/8/2007 9:36:25 PM # Q
I read (from an analyst comment) that the warranty returns were for the Centro. Which Palm should be very concerned about.

RE: My favorite comment was...
Surur @ 12/9/2007 6:37:49 AM # Q
I read that comment, and thought the analyst was probably jumping to conclusions. It could very well be 700p users forcing Sprint to give them 755p's. There has been a lot of that going on at TreoCentral.
RE: My favorite comment was...
SeldomVisitor @ 12/9/2007 8:01:50 AM # Q
I think that topic is one that an "analyst" should try to get addressed - we don;t know if warranty costs from "old" Treos are finally showing up, or if a relatively-new Treo never even got out there and was recalled to fix it first, or if a Treo that was just released is breaking at high rate (even though message boards do NOT seem to suggest that).

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