Palm rises but PDAs continue decline

Palm hasn't yet managed to turn around its declining fortunes, posting a quarterly net loss of $840,000 early this week.


Palm hasn't yet managed to turn around its declining fortunes, posting a quarterly net loss of $840,000 early this week.

The loss compares to a net income of $16.5m for the same period last year.

The results for the first quarter ending 31 August continue a rough patch for Palm, which is posting gains in smartphone sales that don't seem to make up for the downturn in demand for PDAs, Palm's traditional mainstay.

Palm sold 689,000 smartphones during the quarter, up 21% compared to last year. Smartphone revenue was $302m, a 12% increase over last year. Sales of Palm PDAs, which now make up 16% of its business, declined by 33% in the period.

Overall revenue for the period was $360.8m, up from $355.7m in the same quarter last year.

Last week Palm introduced a smartphone brand aimed at enticing traditional low-end phone users to upgrade into the smartphone category. That introduction followed an announcement that the company wouldn't roll out a smartphone companion project that was heavily criticised in the market.

Palm warned that the low-end Centro will drive down its average selling price in the future but said it hopes it can make up for that with higher volumes. That's one reason Gartner analyst Todd Kort is cautiously hopeful about the impact of the Centro.

"A lot depends on how well they market this product to increase the unit volume, to compensate for what it might take away from their higher end brands," he said. "I happen to think it's a reasonably good-looking product, but Palm is still sort of playing catch-up." The Centro is thinner and lighter than Palm's Treo smartphones, following a trend started quite a while ago by Motorola with the Razr.

Kort is even more hopeful that a new Palm product that could come out next year might turn out to be an "interesting breakthrough-type product." Jon Rubenstein, a former Apple engineer who is credited with contributing to the design of the original iPod, recently joined Palm's board. Kort and others speculate that he might be instrumental in the development of a new Palm product that could make a big splash in the market.

Palm needs that because it is "treading water," Kort noted. Even though Palm is recording approximately 20% increases in smartphone volumes, the rest of the market is growing by closer to 50%, he said. That means Palm continues to lose market share.

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