Palm’s Smartphone Sales Keep Rising, But Revenues Down

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Palm, Inc. has just reported that its most recent financial quarter followed the same pattern its last few quarters have: the number of its smartphones sold continues to increase, but because the average selling price of these devices is dropping, revenue is down.

Last quarter, Palm sold 968,000 smartphones. That’s a new high for the company, and a 29% increase year over year.

It’s total revenue in the period, which ended May 30, was $296.2 million. Palm’s revenue during the same quarter of last year was roughly a third higher, at $401.2 million.

The company’s loss in the last three months was $43.4 million, or 40 cents per share. This compares to a net profit in the same period of 2007 of $15.4 million, or 15 cents per share.

As is expected of a CEO, Ed Colligan stayed positive about the situation. "Centro is a tremendous hit, we are gaining market share, and we believe with this momentum, and the launch of new Windows Mobile products, we will turn the corner and return to revenue and margin growth."

Palm OS and Windows Mobile

Although the Centro lacks the cache of the iPhone, wireless carriers — including Sprint, AT&T, and Verizon — have sold nearly two million units since this model debuted last fall.

According to unconfirmed reports, the Windows Mobile devices Colligan referred to are the Treo 800w and Treo 850, which will CDMA and GSM versions of the same smartphone that will be released this summer.

The Centro is a low-cost consumer-oriented model, while the new Treos will be targeted at business users. These Windows Mobile devices won’t sell in the same high numbers as the Centro, but each one will have a higher profit margin.

And it is these margins that are at the heart of Palm’s current problems. It is selling Centros at a fast pace, but not fast enough to compensate for the low profit margin on this smartphone when compared to the Treo line.

Annual Results, Too

May was also the end of Palm’s fiscal year, which roughly mirrored its quarterly results: increasing sales but lowered revenues resulting in losses.

The company sold 3.2 million smartphones in the last twelve months, a record high and an increase of 19 percent year over year.

This led to annual revenue of $1.32 billion. It’s revenue in the preceding year was $1.56 billion.

Palm’s net loss for the fiscal year was $110.9 million, or $1.05 per share. It had a profit in the preceding year of $56.3 million.

Looking Ahead to a New Palm OS

It is during the current financial year that Palm will release a revamped version of its operating system, which it hopes will return it to profitability.

Code-named Nova but often called Palm OS II, this Linux-based platform is being created to power low-cost, consumer-oriented smartphones. Palm has revealed virtually no details on this operating system or the devices that will run it, but says the first Nova models will debut in early 2009.

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