Palm sees profit below expectation

SAN FRANCISCO (Reuters) - Palm Inc PALM.O warned on Monday that current-quarter results would lag Wall Street targets as the smart phone maker, facing growing competition, set aggressive prices for its Treo and Centro devices, sending shares down 4 percent.

The disappointing outlook came as rival devices such as Apple Inc's AAPL.O iPhone and Research in Motion Ltd's RIM.TO Blackberry push into a market the Treo helped create.

On a day that saw the broader market rise some 1.5 percent, Palm shares fell 1.7 percent to close at $16 on Nasdaq, then fell another 4.1 percent to $15.35 in extended trading after the financial report was released.

Palm said that for the current second quarter, it expected a profit, excluding special items, of 6 to 8 cents per share. That was below the average Wall Street outlook of 10 cents, according to Reuters Estimates.

The company said it expected revenue of $370 million to $380 million, shy of the $397 million forecast by analysts.

Palm said gross profit margins had taken a hit as it started sales of its new Centro phone, a smaller and lighter version of the Treo, and offered rebates on older products.

Adjusted gross margin would be between 33.5 percent to 34 percent in the second quarter and for the rest of its fiscal year, the company said.

“That’s primarily the result of introducing new products at aggressive price points to expand our reach into the market,” Chief Financial Officer Andrew Brown told analysts on a conference call.

In its first financial report since shareholders agreed to sell a 25 percent stake to private equity firm Elevation Partners, Palm reported a net loss of 1 cent per share for its first quarter ended August 31, in line with a warning it issued last month.

Excluding special items, such as stock-based compensation and restructuring charges, Palm showed a profit of 9 cents per share, beating the average Wall Street target by a penny.

Palm Chief Executive Ed Colligan said Apple’s $200 iPhone price cut had not had a big impact.

“It’s hard to estimate if there would have been more upside in our volumes without the iPhone but I can tell you ... we have seen very little change in our sell-through volumes,” Colligan told analysts.

“I’m sure it’s had some impact but not anything that’s significant.”