Palm’s long, hard climb continues

Despite delivering a bona fide hit handset, the $99 Centro, Palm Inc. continued to struggle with revenue and profit in fiscal fourth quarter.
For the quarter ended May 31, Palm reported that revenue was $296 million, down 26% from the year-ago quarter, and net income was a loss of $41 million. The loss came despite shipping 968,000 smartphones, a 29% jump over the year-ago quarter.
The culprit was margins, according to analyst Matt Thornton at Avian Securities L.L.C.
“Ongoing deterioration in the higher ASP/higher margin Treo franchise weighed on profitability during the quarter resulting in a smartphone ASP and total gross margin that were well below the consensus forecast,” Thornton wrote in a note to investors. “Specifically, smartphone ASP of $288 was well below the consensus estimate closer to $315. Total gross margin of 25.3% came in more than four points below the 29.5% consensus forecast.”
“We continue to invest in Palm’s future and remain focused on building long-term value,” said Ed Colligan, Palm’s president and CEO. “Centro is a tremendous hit, we are gaining market share and we believe with this momentum and the launch of new Windows Mobile products, we will turn the corner and return to revenue and margin growth.”
Thornton said that Colligan’s points are valid.
“”We expect to see the new Treo 800w at Sprint stores in the mid-July time frame. The Treo product line refresh should help stabilize ASPs in the coming quarters and lift gross margins from currently depressed levels,” Thornton wrote. “The company also noted that the new Palm OS remains on track for completion by calendar year-end, with new Palm OS-based products (due) in the first quarter of 2009.”
Palm also reported full fiscal year results.