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Palm Q2 sales narrowly beat forecasts

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CIOL Bureau
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Peter Henderson

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SAN FRANCISCO: Palm Inc., the No. 1 maker of hand-held electronic organizers,

doubled its sales in the second quarter, edging past Wall Street estimates

without delivering the revenue breakout some investors had hoped for.

Palm shares plunged in after-hours trade following the company's earnings

announcement on Wednesday, but analysts pointed to Palm's strong unit sales and

said the company's conservative accounting was partly responsible for lower

topline growth.

The Santa Clara, Calif.-based company, which spun off from 3Com Corp. and

began trading separately last year, said it was tough to get parts for popular

units of the electronic organizer, the Palm Vx and new entry level m100, but it

reaffirmed Wall Street forecasts for next year.

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Sales for the quarter ending December 1, which includes most of the

organizers sent to distributors for the Christmas sale period, rose to $522.2

million from $258.6 million a year earlier.

Unit sales rose to 2.1 million from 1.5 million in the previous quarter,

soundly beating many expectations, and demand was especially strong for the

sleek Palm Vx and the m100, both of which needed microchips in short supply,

executives said.

Palm has now sold nearly 10.9 million organizers, with many more handheld

products using its operating system.

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Businesses buying Palms



Executives said businesses and schools were buying more Palms and the company is
sticking to its strategy of embracing wireless technology and licensing the Palm

operating system to competing device makers.

"The global economy continues to shift to mobile handheld

computing," chief executive Carl Yankowski told analysts in a conference

call. "It is a marathon and not a sprint."

Consumer aversion to personal computers so far had not affected the cheaper

personal organizers, he said.

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"Consumers are saying they are buying smaller ticket items, but the good

news is that they are still buying."

He also announced the $40-45 million cash or stock acquisition of WeSync, a

Portland, Ore.-based wireless service company.

Palm's operating profit, or pro forma net income, rose to $27.5 million, or 5

cents a share, from $15.5 million, or 3 cents per share, in the year earlier

period.

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Analysts had expected that profits on that basis, excluding amortization of

goodwill and intangible assets and separation costs, would be 4 cents per share,

according to research firm First Call/Thomson Financial.

First Call put the consensus sales forecast at $520.33 million.

Palm shares tumbled after hours to $32.75 on the Island trading system after

closing at $38-1/8 on Nasdaq. The stock had already lost $5-1/2, or more than 12

per cent, during the day session marked by sharp losses for technology stocks.

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"(Revenue) guidance as of last quarter was $500-$530 (million). With

typical analyst and investor behavior, we expect companies to upside from what

their guidance is," said C E Unterberg, Towbin analyst Jason Tsai.

Fell below whisper number



But Palm's sales reflected conservative accounting for rebates and surprisingly
strong sales of the m100, which make them better than they appear at first

glance, said Pacific Crest Securities analyst James Faucette.

Palm had subtracted rebates from sales rather than booking gross revenues and

taking a charge for marketing costs, he said.

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The whisper number for earnings per share, a rumored expectation, had been

six cents, which was far above his own estimate, said Faucette, who gives his

highest rating, a strong buy, to Palm.

Chief financial officer Judy Bruner made forecasts that roughly matched

current Wall Street thinking.

Parts shortages and a seasonal slump would push December to February quarter

revenues down to $465 million to $490 million and sales for the entire fiscal

year at $1.9 billion to $2.0 billion.

Earnings per share would be approximately one cent in the third quarter and

three cents in the fourth.

"Component constraints will ease in the February or March time

frame," she said, making a slight improvement on previous outlooks.

(C) Reuters Limited 2000.

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