Analysts seek signs Palm has grasp on future

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NEW YORK, June 25 (Reuters) – Palm Inc.(NasdaqNM:PALM – news) this week reports results from its turbulent fourth quarter, but investors may be more interested in whether the handheld-computer maker has a sure grasp on a plan to regain profitability.

The Santa Clara, California-based company is expected on Tuesday to show a pro forma operating loss of $170 million to $190 million for the quarter ended in May. Analysts surveyed by Thomson Financial/First Call predict a loss of about 19 cents, on revenues of $145 million.

That’s a sharp contrast to the profit of $16.3 million, or 3 cents a share, the company delivered one year ago.

But so much has changed since then. In mid-2000, Palm’s quarterly revenues were routinely doubling amid consumers’ thirst for the handy digital assistants.

Its stock was looking up despite the gloom in the technology sector, bolstered by the notion that Palm OS — Palm operating systems software used in about 80 percent of all handhelds — was a long-term winner akin to Microsoft Corp.’s (NasdaqNM:MSFT – news) ubiquitous Windows software.

This year, a storm of humbling events brought Palm, and its stock, plunging to earth. The sluggish economy forced consumers to think twice about buying the units, while production delays and the mis-timed unveiling of Palm’s new high-end products created a glut of older, cheaper units.

At about $4.60 a share, Palm’s shares are off some 93 percent from their 52-week high and have this year underperformed the S&P 500 index by 95 percent.

The company twice halved its revenue outlook for the quarter and pulled the plug on a merger with Extended Systems Inc.(NasdaqNM:XTND – news) that was to fuel Palm’s strategy for selling handhelds to corporations.

When Palm reports on Tuesday, analysts say they will be looking primarily for signs the company is poised to rebound from such a troubling quarter.

“The numbers do not matter,” said J.P. Morgan analyst Paul Coster of the current quarter’s results. “It’s a question of whether or not this company can resolve all its operational issues, and then demonstrate an ability to execute a strategic vision that allows them to start growing again.”

The investment community will also watch for any mention of how Palm plans to stave off a cash crunch by year’s end, should revenues continue to sputter.

PALM STAR NO LONGER RISING

Unlike a year ago, Palm now must prove that it is charting the smartest and most profitable course. The company must also spell out how it will respond to competition from rivals such as Research In Motion Inc.(NasdaqNM:RIMM – news), maker of the popular Blackberry device, and Compaq Computer Corp.(NYSE:CPQ – news), whose iPAQmodel is powered by Microsoft’s Windows CE software.

“Unlike a lot of technology companies that are struggling through a tough time, Palm is going to have to do a wholesale revaluation of their business, and see does it make sense to do everything that they are doing,” said James Faucette, analyst at Pacific Crest Securities.

Palm Chief Executive Carl Yankowski must address the company’s fractured plans for selling into the enterprise market, where demand in coming years is expected to rise dramatically.

Following the demise of the Extended Systems deal, industry statistics showed popularity for RIMM and iPAQ Models in corporations was growing, and that Palm’s heavily discounted lower end products were being scooped up by more and more regular consumers.

Moreover, any discussion of new Palm products must include a solid plan for machines that can wirelessly send and receive information, keeping corporate users linked to people and data in their offices.

“They are going to make reassuring noises about a wireless communications device by the end of the year, and that will provide some reason for hope, because it’s likely to be a higher priced product, providing it’s got a server-side solution appended to it,” J.P. Morgan’s Coster said.

Perhaps the biggest challenge for Palm’s Yankowski is his ability to persuade the investment community that after such a tough quarter, Palm can make good on its strategic plans.

“They have to be very decisive and plausible,” Faucette said. “It’s easy to say that they are going to do this and that. But they must show that they can do that through putting up meaningful results, and getting themselves well back on the track to profitability.”

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