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Treos Reduce PalmOne's loss

Mon Mar 22, 2004 - 7:08 PM EST - By Michael Ducker

Palmone today reported revenue of $242.5 million for the third quarter of fiscal year 2004, ended Feb. 27, up 22.6 percent from the $197.9 million reported during the third quarter a year ago. PalmOne closed down $0.70 today (4.81%) , but as of writing (6 pm) it is up $2.38 (17.20%) to $16.22.

The full financial press release is below, but first I want to share some notes that I took during the conference call.
  • Todd Bradley and Ed Colligan repeatedly made comments referring to a future Treo family of smartphones. This could be a spring/summer/fall launch; no time frame was given.
  • The Treo 600 is selling! More than 1000 enterprise customers are evaluating the Treo with Goodlink software, and sell through of treo 600 is twice the highest quarterly sell through of previous generation of treo’s – As said by Bradley, “The Treo is moving beyond early adopters, into the mainstream market”. 137,000 Treo 600's were sold, as compared to 100,000 last quarter.
  • PalmOne continues to have trouble manufactoring enough Treo 600's - both GSM and CDMA versions are in high demand. PalmOne blames supply problems for this; they are now dual sourcing the displays, and are evaluating the use of a third manufactor. This has constricted their Q4 prediction of Treo 600 sales to only 160,000 units. They believe that they can sell more, but they cannot make them. Elsewhere on the web, Phil Baker is reporting that PalmOne will sell 600,000 Treo 600's this year.
  • New Treos are in development. Currently Palmone is spending about 33% of their R&D on Treos, next quarter they plan to spend about 66% of their R&D on Treos. They continue to work with new companies to develop solutions for the Treo, including Kodiak Networks, which is a manufactor of Push-To-Talk (PTT) software. Recently Orange launched PTT on their Treo, we may see it stateside soon.
  • Palmone plans to launch the Treo on four new major carriers this year, and while not stated in the call, I know that Verizon will be one of those four.
  • Last of all, for those who are worried that the delay in ramping up Treo 600 production would delay the launch of new Treo products, don't be worried. Responding to a question akin to that, Bradley states: “Treo 600 is not EOL [End of Lifed], it still has strong demand... [The high demand and delay in shipping units has] no effect on work of future products, or creation of a family of treos”

Here's their financial press release:

MILPITAS, Calif., March 22 /PRNewswire-FirstCall/ -- palmOne, Inc. (Nasdaq: PLMO - News) today reported revenue of $242.5 million for the third quarter of fiscal year 2004, ended Feb. 27, up 22.6 percent from the $197.9 million reported during the third quarter a year ago.

For the third quarter of fiscal year 2004, net loss, in accordance with generally accepted accounting principles (GAAP), was $9.3 million, or $0.20 per share. This compares to a net loss from the year-ago quarter of $172.3 million, or $5.93 per share. The net loss of $9.3 million for this quarter included restructuring charges of $4.5 million and amortization of intangible assets and stock-based compensation of $5.4 million.

Net income in the third quarter of fiscal year 2004, measured on a non- GAAP basis, totaled $0.6 million, or $0.01 per share. This compares to non- GAAP net loss in the third quarter a year ago of $24.7 million, or $0.85 per share. Non-GAAP net income (loss) excludes the effects of amortization of intangible assets and stock-based compensation, impairment charges, restructuring charges and losses from discontinued operations.

"Over the past quarter, we strengthened our leadership in handhelds and saw excellent demand for our Treo smartphone," said Todd Bradley, palmOne president and chief executive officer. "The strong results this quarter show that our strategy of delivering scale from the handheld product line, coupled with growth from the wireless product line, is working. We are very excited about our prospects."

The company noted the following year-over-year operational highlights in the quarter's results:
-- Revenue up 23 percent;
-- Average selling price of $233 per device, up from $169;
-- Gross margin at 28.9 percent, up from 23.8 percent;
-- Inventory-turn improvement to 22 from 20; and
-- Cash, cash equivalents and short-term investments of $239.8 million, up
from $224.8 million.

During the quarter, palmOne sold approximately 938,000 handheld computing and communications solutions, bringing the total number the company has sold to 25.3 million. In handheld computers, NPD reported that palmOne increased its market share in U.S. all-channel sales (including retail, commercial and online) by 11 percent to 57.7 percent in January, the most recent monthly report, compared with the same period a year ago.

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