June 28, 2007 / 8:41 PM / 12 years ago

Palm quarterly profit drops, expects iPhone effect

NEW YORK (Reuters) - Palm Inc. PALM.O posted lower quarterly earnings on Thursday as increasing sales of its Treo smartphones were offset by a downturn in its more profitable handheld computers.

Palm also said it could post a small loss on declining revenue this quarter due to slow summer sales and fears that Apple Inc.’s (AAPL.O) widely anticipated iPhone — due to launch on Friday — would temporarily hurt demand for Treos.

“It’s likely that as people try (iPhone) out, there may be some stall in our sell-through,” Palm Chief Executive Ed Colligan told Reuters in an interview.

Colligan said he did not expect this would be a long-term trend and that if iPhone does well, the resulting boost in consumer interest in smartphones would help Palm.

“They will have 30 days to return (iPhone) so we hope we’ll benefit from that, if that happens,” he told analysts on a conference call.

Palm said profit fell to $15.4 million, or 15 cents per share, for its fiscal fourth quarter, from $27.2 million, or 25 cents a share, in the year-ago quarter.

Palm earned 17 cents per share before items such as stock based compensation. This compared with average analyst estimates for 15 cents per share, according to Reuters Estimates.

Revenue fell to $401.3 million from $403.1 million and compared with analyst estimates of $406.58 million.

Oppenheimer analyst Lawrence Harris said he was disappointed with Palm’s fourth quarter Treo sales and its outlook for the current quarter. Harris also said he was concerned with Palm’s lack of new products to compete with Apple and other rivals.

“It certainly appears to me the company is being affected by the introduction of the Apple iPhone,” he said.

“We were starting to see a moderation of growth at Palm even before iPhone goes on sale,” said Harris. He had expected 800,000 Treo sales in the quarter, compared with Palm’s reported 43 percent rise in unit sales to 750,000.

Shares of Palm fell to $16.15, or more than 2 percent, in extended trade after closing at $16.56 on Nasdaq. The stock had fallen as much as 4 percent at one point after the news.


In contrast, rival Research In Motion RIM.TO, which makes the popular Blackberry e-mail device, saw its shares rise 8 percent in late trade after the company posted a better-than-expected quarterly profit and announced a three-for-one share split.

Palm said it could post a fiscal first quarter net loss of 1 cent per share to a profit of 1 cent per share. It forecast revenue between $355 million and $365 million, compared with average analyst estimates for revenue of $391.27 million.

Colligan said Palm hopes to see improvements from new product launches around the end-of-year holiday shopping season but he did not give any details.

“As we introduce new products you can expect us to see new revenue growth and increased profitability,” he said.

Palm said this month it would sell a 25 percent stake to private equity firm Elevation Partners for $325 million.

Colligan said he expects the company’s handheld business, which represented only 15 percent of revenue in the quarter, to continue to decline at the same pace. But he said Palm was not ready to give up on the business, which provides profits that help it invest in growth areas.

“Is there an inflection where a significant change should be made? Maybe but that’s not today. We’re continuing to run it as it is at this point in time,” he told Reuters.

Reporting by Sinead Carew editing by Phil Berlowitz and Deborah Cohen; email: sinead.carew@reuters.com; +1-646-223-6186

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