Palm Revenues $65m Lower Than Expected: Hurry Up Pre!

Palm's preliminary Q3 2009 financial results are out – covering the three month period up until February 27th – and it doesn't take much between-the-lines reading to see how important the Palm Pre is going to be for the company.  Revenues for the quarter are expected to be between $85 million and $90 million, significantly less than the $155m investors and analysts had been expecting.

"The much-anticipated launch of the Palm Pre remains on track for the first half of calendar year 2009, but as expected we've got a difficult transition period to work through.  Despite the challenging market environment, the extraordinary response to the Palm Pre and the new Palm webOS reaffirms our confidence in our long-term prospects and our ability to reestablish Palm as the leading innovator in the growing smartphone market" Ed Colligan, President and Chief Executive Officer, Palm

Palm blamed the current economy, later-than-expected shipments of the Palm Treo Pro in the US and, oh yes, the fact that fewer people wanted their aging devices, as main reasons for the decline.  Although CEO Ed Colligan highlighted the upcoming Pre as a possible salvation, he admitted that the time in-between its launch and now will be difficult. 

Full financial results will be released on March 19th, and we're gearing up to hear about a significant loss in excess of what analysts have predicted.   Still, consider it merely extra motivation for the company to get the Pre out on schedule.

Press Release:

Palm Reports Preliminary Q3 FY09 Results

SUNNYVALE, Calif. –(Business Wire)– Mar 03, 2009 Palm, Inc. (Nasdaq:PALM) today reported preliminary results for its third quarter of fiscal year 2009, which ended Feb. 27, 2009.

The company announced that it expects to report revenues for the third quarter of fiscal year 2009 in the range of $85 million to $90 million. The revenue declines vs. the company's second quarter of fiscal year 2009 and third quarter of fiscal year 2008 are the result of reduced demand for Palm's maturing legacy smartphone products, the challenging economic environment and later-than-expected shipments of the Treo™ Pro in the United States. The company expects declining revenues and continued margin pressure from its legacy product lines in the fiscal fourth quarter.

"The much-anticipated launch of the Palm® Pre™ remains on track for the first half of calendar year 2009, but as expected we've got a difficult transition period to work through," said Palm President and Chief Executive Officer Ed Colligan. "Despite the challenging market environment, the extraordinary response to the Palm Pre and the new Palm webOS™ reaffirms our confidence in our long-term prospects and our ability to reestablish Palm as the leading innovator in the growing smartphone market."

Palm stated that cash used in operations for the quarter is expected to be between $95 million and $100 million. The company's cash, cash equivalents and short-term investments balance is expected to be between $215 million and $220 million at the end of the third quarter.

Although Palm believes it has sufficient cash, cash equivalents and short-term investments to meet its working capital needs under its current operating plan, the company intends to strengthen its working capital position given the challenging economic environment and the opportunity to drive both the launch of the Palm Pre and future product-development efforts. The company is currently evaluating options in this regard, including the exercise of its right to direct the remarketing of a portion of the common shares underlying the Series C preferred stock and warrant units owned by Elevation Partners. Palm is entitled to retain any net profits realized from such remarketing.

Separately, Palm indicated that since it expects to periodically provide new software features free of charge to customers of its Palm webOS products, including the recently announced Palm Pre, it will recognize the revenues and cost of revenues associated with Palm webOS product sales on a straight-line basis over the product's estimated economic life of 24 months. The company will be recording deferred revenues and deferred cost of revenues on its balance sheet, and amortizing them into earnings on a straight-line basis over the estimated economic product life of 24 months. The company will continue to expense engineering, sales and marketing costs as they are incurred. This accounting treatment will have no impact on cash flow. A more detailed discussion of this accounting treatment can be found on Palm's Investor Relations website at http://investor.palm.com.

Palm Investors' Note

Palm will report its complete third-quarter fiscal year 2009 financial results on Thursday, March 19, 2009, and will host a conference call to review the complete financial results beginning at 1:30 p.m. PT / 4:30 p.m. ET. The conference call will be hosted by Ed Colligan, president and chief executive officer. Investors and other interested parties are encouraged to listen to the call by logging onto the conference call webcast prior to the start of the conference call at Palm's Investor Relations website (http://investor.palm.com). Investors wishing to listen to the conference call via telephone may dial 800.901.5247 (domestic) or 617.786.4501 (international). There is no pass code required for the live call. A telephone replay of the conference call will be available through March 30, 2009. The dial-in number for the replay will be 888.286.8010 (domestic) and 617.801.6888 (international). The pass code 15222468 is required for the replay. An archive of the audio webcast and visual portion of the conference call will be posted on Palm's Investor Relations website at http://investor.palm.com.