NEW YORK-Declining real estate values in Silicon Valley, restructuring associated with layoffs and decreases in units shipped caused Palm Inc., the leading vendor of handheld computers, to report a drop in revenues and profits late March 20.
The Milpitas, Calif., company, which had warned earlier this month of a slowdown, earned revenues of $209 million and posted a loss of $172.3 million, or $5.93 per share, during the third quarter, which ended Feb. 28. That compares with revenues of $292.7 million and profits of $2.9 million, or 10 cents per share, for the third quarter of last fiscal year.
A significant part of the losses reported for the latest complete quarter resulted from a pair of one-time charges: impairment of $102.5 million for the write-down that reflects the lowered market value of 39 acres it owns in San Jose, Calif.; and restructuring of $40.2 million associated with downsizing at its two business units, Palm Solutions Group and PalmSource.
Excluding these charges, Palm’s losses totaled $26.5 million, or 91 cents per share, the average among analyst expectations, which ranged from 73 cents to $1.03, according to Thomson First Call. Third-quarter revenues slightly exceeded the consensus estimate of $207.8 million.
“The progressive recovery of the handheld industry is continuing, although still held back by weak economic fundamentals. We are pleased to post the first profitable quarter of our PalmSource subsidiary,” said Eric Benhamou, chairman and chief executive officer.
PalmSource is responsible for developing and licensing the Palm operating system.
However, revenue in the company’s hardware group, Palm Solutions, declined by 30 percent to $197.9 million, compared with the year-ago quarter.
“Enterprises are not deploying new information technology solutions unless they can see payback measured in just a few months,” Benhamou said.
“In addition, consumer confidence has been significantly eroded in the past few weeks, (with consumers) shifting behavior toward buying lower-end models.”
Units shipped declined to just more than 1 million, compared with 1.29 million during the same quarter of 2002. The newer Palm models, the Zire, Tungsten T and Tungsten W, accounted for 49 percent of device shipments and 45 percent of device revenues in the latest complete quarter.
Even without taking into consideration the possibility of further sales slowdowns related to war in Iraq, Palm said it expects fourth-quarter revenues to be between $185 million and $200 million, a 15-20 percent decline from a year earlier.
Palm executives also said they expect growth in device shipments will turn positive as 2003 progresses and will reach the double-digit percentage range by year-end.
“Palm is determined to return to sustained profitability, without sacrificing its participation in the growth drivers of the next chapter in the handheld industry,” Benhamou said.
Following Palm’s earnings report, Credit Suisse First Boston revised downward its outlook for Palm’s stock for this fiscal year, projecting a year-end loss of $2.91 per share, compared with earlier expectations of $2.08 loss.
Palm released its results March 20 shortly before the end of trading on Nasdaq, and its share price rose by 19 cents to close at $10.89.
