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Palm Announces Q3 Financial Results

Thu Mar 22, 2007 - 4:17 PM EDT - By Jennifer Chappell, Dieter Bohn


Palm has just posted their financial results for last quarter and the biggest news doesn't appear to be confirmation of all the buyout rumors, but instead record "sell through" of Treo Smartphones:
Smartphone sell-through for the period reached a company record high totaling 738,000 units, up 30 percent year over year and up 20 percent sequentially.
"Sell-through" represents the number of Treos that actually made it into the hands of consumers, so that increase is great news. Especially as this is two quarters in a row with record sell through (see our coverage of the last conference call). Net income for the quarter was down overall - both over last year's quarter and the last quarter:
Net income in the fiscal quarter totaled $11.8 million, or $0.11 per diluted share. Net income included stock-based compensation expense of $5.7 million, an in-process research and development charge from acquisitions during the quarter of $3.7 million and amortization of intangible assets of $0.3 million. This compares to net income for the third quarter of fiscal year 2006 of $29.9 million, or $0.28 per diluted share.
On the bright side, however, is that the loss is partly due to that "research and development charge" - meaning Palm is sticking to their word of investing in R&D for future growth. TreoCentral is listening in on the conference call right now - so watch this space for more developments as they come in.

TreoCentral's Analysis

Palm really smacked down the buyout rumors and HARD! When the question got asked, the answer was always, "No comment." People continued to ask though. One person who asked had their call cut short so the next caller could ask a question.

The Investor Day Conference will be held April 10th, 2007. Palm made it clear when asked about future devices that there won't be any answers about that at the conference. But they did state that there will be a number of new products coming out this year. ;-) Another thing that Palm made clear is that they are in control of their destiny right now and they are very happy about that.

Palm said that their internet experience is superior and they believe they have the best web experience on the market. The Palm website has the highest rate of hits of any website on mobile phones. And Palm is investing in making their website experience better and better.

Treo 680 sales saw a shift towards women. Could that be partly due to the color choices? Palm said that prices didn't seem to be a factor in the Treo sales increase. Speaking of prices, when someone asked about Palm's feelings regarding the release of the Motorola Q, Palm said that they were caught off guard by the pricing of the Motorola Q. And then went on to say that aggressive pricing probably wasn't a good idea as sales weren't that great.

Palm talked about something very interesting regarding future Treo costs. Treo costs may come down due to this new way of developing hardware platforms first, then applying the OS to it second. If those costs do come down, Palm will probably see a repeat of fantastic "sell throughs".

Palm is very happy about getting control of the PalmOS from Access both on a technical and a financial level. Palm talked about differentiating between the "foundation" (which Access made) and where you actually experience the "house" - the "rooms" (which is Palm Software. They care more about the PalmOS "user experience" (the "house and "rooms") than the underlying foundation (Access being the foundation). Palm said that there is a future in the Palm OS platform and that they're progressing as quickly as expected.

So no answers on the rumors flying around. But one thing is for sure; Palm has a huge global reach in their market, including 7 of the world's top 10 carriers. By making significant investments in R&D, they could certainly expand their reach. Palm hopes to get more of their Treos on 3G networks.

Live Updates:

Colligan is on now, he's excited about international expansion (doubled international sales over last year). Palm's march to get more carriers continues - they expect to add more carriers by the end of May and add a Chinese R&D division soon.

They're designing new "hardware reference platforms." Interesting. They'll be able to offer "hardware platforms" that can run on different operating systems. For example, they're sort of already doing that with the 700p and the 700wx. This is a new way for them to operate - instead of just doing device by device development, they'll develop the hardware separately and then use that hardware to run whatever OS they'd like - PalmOS or Windows Mobile.

Palm still is trying to reach new users - they're trying to show how they offer the "best web experience" and getting non-smartphone users to convert to users. They're going to expand the "butler" program wherein they offer great phone support to new Treo users.

Financial stuff now: Record smartphone sellthrough is being reiterated. The main reason for the increase: a reduction in the cost of the Treo. Part of the reason they're able to sell Treos for less is they're no longer making royalty payments to Access. Good job Palm!

Revenue comes from 86% Smartphone and 14% PDAs. Put a fork in non-phone PDAs, they're done.

Looking ahead to Q4: they expect revenue of around $400 million and continued strong Smartphone sellthrough. They'll continue to invest in product development and marketing, obviously. Now on to questions.

First question is over our head: a lot of financial numbers. Second question: Palm's up to 81 operators now. Palm's own inventory is going down overall, which is actually about where they want to be.

Aha: the big question just came up, asking about hiring an investment bank and the rumors - and the expected answer: "no comment"

Back to the PalmOS licensing deal - it's really clear Palm is happy about this not just because of the control they have over the OS, but also because it's helping their bottom line.

Ah, "Is Windows Mobile still critical for your international expansion, or is the PalmOS gaining acceptance?" Interesting answer - WM basically helps Palm get a foot in the door with int'l carriers.

They're mentioning the "major new area" that Jeff Hawkins has been talking about - but they're again not going into details. Furthermore, no detail is going to be given about the PalmOS, but they "do believe there is a future in that platform." "Stay tuned, we'll roll out those products when they're available." Ooh, they're differentiating between the "foundation" (which Access made) and where you actually experience the "house" - the "rooms" (which is Palm Software). They need more work on the foundation, clearly.

Smackdown on another rumor question. Bully to you, Palm! They're pushing the point that they're running the business and are independent. Period.

Interesting. Palm wasn't expecting the Motorola Q to be as inexpensive as it is.

Whoa. "It's still unclear" whether or not Apple is going to bring a product to market since they've only done a demonstration. Palm: I know it's still *technically* vaporware, but the iPhone's coming. ;)

Early Treo 680s sales show a "pretty significant shift" to women buyers. Also worth noting: Treos may cost more than other smartphones, but they're still having record sellthrough.

Products based on the their new method of creating hardware platforms first, then adding the OS to those platforms second will be available before the end of the year.

How does Palm differentiate itself in an increasingly crowded smartphone market? It's the overall Palm experience, it's the best browsing experience overall, Palm's mobile portal has a lot of traffic, etc. They'd like to take that experience to other applications. They intend on pushing the form factor and costs of their future products.

And we're done, folks! Watch this space in a little bit for some analysis, up top.

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