Palm Inc, the biggest maker of handheld computers, had a fiscal second-quarter loss as sales fell 44 percent amid slumping demand for consumer electronics.
The loss was US$25.2 million, or US$0.04 a share, in the quarter to Nov. 30, compared with net income of US$20.3 million, or US$0.04, a year earlier. Sales fell to US$290.6 million, better than the US$250 million to US$280 million Palm forecast on Nov. 29, sending the shares as much as 16 percent higher after the report.
Palm, based in Santa Clara, California, has been trying to recover after stumbling earlier this year with delays in introducing new products. Palm executives said that while demand appears to have reached a low point, a recovery could be slow and extended. The company will unveil a new product that can be used to log on to the Internet later this quarter, after earlier postponing its introduction.
"It may be to a point where things are finally improving," said Tom Sepenzis, an analyst with CIBC World Markets, who rates the shares "buy" and doesn't own them. "But with the market being what it is, you never know what it will throw at you."
Palm shares rose as high as US$3.86 after the earnings report, then settled back to US$3.63. They gained US$0.13 to US$3.32 in regular trading before the release and have fallen 88 percent this year. Palm has fired more than 750 workers in three rounds of job cuts to cope with the slowdown. Chairman Eric Benhamou replaced Carl Yankowski as chief executive last month, and the company has been cutting prices to lure buyers.
"There are still a number of question marks," said Paul Coster, an analyst with JP. Morgan, who rates the shares "arket perform" and doesn't own them.
Palm needs about US$300 million in quarterly sales to break even, Benhamou said on a conference call with analysts. The company forecast third-quarter sales of US$250 million to US$260 million and fourth-quarter revenue of US$290 million to US$300 million. That's more than the average forecasts of US$220 million and US$270 million from a poll of analysts by Thomson Financial/First Call.
"The market as a whole is beginning to enjoy more positive growth than conventional wisdom gave it even a couple of months ago," Benhamou said.
During the second quarter, Palm's sales were higher than expected as it sold more low-cost devices such as the US$99 m100 to price-conscious consumers looking for bargains, hurting profitability. The average price of devices sold during the quarter was US$164, compared with US$212 in the same period last year, Chief Financial Officer Judy Bruner said.
New products this quarter will increase the average price and help profitability, she said. Palm is also no longer making cheaper products such as m100, she said.
"It was a mixed quarter, at best," said Michael Kim, an analyst with Robertson Stephens, who rates the shares "market perform."
Benhamou said top goals for the next year include splitting Palm's unit for operating system software into a separate company, selling more to corporations and introducing a handheld computer that can handle sophisticated tasks such as playing video clips.
Excluding a benefit from the sale of inventory the company previously wrote off, merger-related expenses and restructuring costs, Palm said it would have lost US$36.6 million, or US$0.06 a share, in the recent period.
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