Palm posts steep Q4 loss

Franklin Paul

NEW YORK: Palm Inc., the No. 1 maker of handheld devices, on Tuesday reported

its fiscal fourth-quarter results, which were bruised and beaten by slackening

demand, oversupply, and discounted prices.

While grim when compared to its year-earlier performance, the company's

results were not as bad as had been feared. However, Palm's estimates had been

trimmed several times during the quarter as one warning followed another.

But all is not lost, according to company officials and analysts who spoke to

Reuters on Tuesday evening. The company expects to turn things around in the

early part of fiscal 2002 and turn a profit during the fiscal second quarter. In

after-hours action Tuesday, Palm shares were trading higher. Palm, the leading

manufacturer of personal digital assistants (PDAs), reported a $153.6 million

pro forma loss, which excludes certain special items. A year ago, the company

posted pro forma operating income of $13.4 million, Palm said in its release.

Its pro forma net loss was $89.2 million, or 16 cents per share for the

quarter. This compares to pro forma net income of $17.2 million, or three cents

per share, for the year-ago quarter.

The net loss for the quarter slightly topped the latest consensus estimate

for a loss of 19 cents per share, according to Thomson Financial/First Call. But

these expectations reflected sharply lowered forecasts after the company had

previously guided estimates downward.

Including the items, the actual net loss for the fourth quarter was $392.1

million, or 69 cents per share. Revenue fell to $165.3 million from $350.2

million in the fourth quarter of fiscal 2000, but exceeded the company's revised

guidance of $140 million to $160 million set on May 17.

During the quarter, the company took a restructuring charge of $60.9 million

relating to real estate consolidation costs and employee severance expenses. The

severance charges related to previously announced workforce reductions involving

over 500 employees and contract workers.

The company also took a charge of $268.9 million during the quarter relating

to the write-off of components, work-in-process, and finished goods not expected

to be used or sold. Palm shipped 6.4 million Palm handhelds during fiscal 2001,

bringing the total number of Palm-branded handhelds shipped to date to

approximately 13.7 million.

Future brightening ... eventually



In a statement, Palm said that it expects to turn a profit by the second quarter
of fiscal 2002, driven by sales of its new products and cost-cutting efforts,

including the reduction of some 25 per cent of its work force.

CIBC World Markets analyst Thomas Sepenzis was generally upbeat about the

stock following the results, noting that the company's forecasted return to

profitability would come sooner than expected. "It's incrementally

positive, but not overwhelming," he said of Palm's results.

Analyst Paul Sagawa, of investment firm Sanford C. Bernstein, was a bit more

effusive about Palm and said the company has many reasons to be positive,

considering that despite their troubled quarter, they continue to dominate a

market that is expected to grow sharply in coming years.

"What they had is a big, old-fashioned channel inventory problem, but

they are growing their way out of it," said Sagawa, who has an

"outperform" rating on Palm shares. "What they are saying is that

demand for their products is better than they had feared and they are able to

look forward and say the next two quarter are going to be pretty good."

On Tuesday, Palm shares ended down 4 cents, or 0,8 per cent, at $5.19. This

year, the stock has tumbled 81 per cent and has underperformed the

underperformed the S&P 500 index by 77 per cent. In after-hours trade,

shares of Palm rose to over $6.00.

(C) Reuters Limited 2001.