September 25, 2000 4:50 PM PDT

Palm handily beats earnings estimates

Despite ongoing component shortages, Palm today reported record sales, as well as earnings well ahead of Wall Street estimates, amid strong demand for handheld computers.

Sales more than doubled from the same quarter last year.

Excluding acquisition- and spinoff-related charges, Palm said it earned $23.9 million, or 4 cents per share, on revenue of $401 million for its

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fiscal first quarter that ended Sept. 1. In the same quarter last year, Palm earned $10 million, or 2 cents per share, on sales of $176.5 million.

Analysts had expected Palm to earn an average of 2 cents a share, according to First Call/Thomson Financial.

Including charges, earnings for the quarter were $17.3 million, or 3 cents per share.

"The Palm team again delivered stellar results on multiple fronts: revenue, units shipped, profitability, and content and platform momentum," Palm CEO Carl Yankowski said in a statement. "This is our third consecutive quarter of 100 percent-plus, year-over-year revenue growth, and we achieved it in an environment of increased competition and continued component constraints."

Palm's stock closed today at $52.25, up 44 cents. In after-hours trading, however, the stock dropped to $51.

The company said it shipped about 1.5 million devices in the quarter, bringing its cumulative shipments to more than 8.7 million.

That's up from up from 1.18 million units shipped in the prior quarter and up 580,000 from same quarter last year.

The average selling price for Palm handhelds was $240 for the quarter, down from $262 in the previous quarter.

"It was a solid quarter," Merrill Lynch analyst William Crawford said. "They did well considering the component issues."

Although the supply of components--flash memory, other chips and screens--is improving, shortages continue to be a problem, executives said.

Palm said it won't be able to ship as many of its wireless Palm VIIx handhelds this quarter because its supplier will not be able to deliver enough of two needed chips.

"Sometimes when you sole-source, you get stung," Crawford said, noting that the Palm VIIx is still a relatively low-volume product.

Chief financial officer Judy Bruner told analysts in a conference call after earnings were released that Palm is also witnessing other component shortages, although in general, the supply situation is improving.

However, Bruner said it would be until at least Palm's third quarter, if not the fourth, before supply of all components fully meets demand.

"We believe we are doing just as well, if not better, than others in our industry at securing components," Bruner said.

Palm said it continues to see its fiscal 2001 sales in the range of $1.9 billion to $2 billion, with sales of $500 million to $530 million expected in the current quarter. Sales are expected to drop in the fiscal third quarter and then increase again in the fourth quarter.

Gross profit margins are expected to dip in the current quarter from last quarter's 38.3 percent, because this quarter, Palm will be shipping its low-end m100 for the full quarter.

Although overall inventories remain low, Bruner said the situation is improving. "We believe it is rising, and we believe we will be in a good position for the holiday season."

Meanwhile, Palm is working to expand its .Net wireless Internet service into a "personal mobile portal," the company said. This will involve making over the AnyDay.com Web calendar service it acquired earlier this year and adding improved calendar synching.

Further, the company said, it is moving to make the Web site more accessible and attractive to Palm owners who use their devices to access the Internet via a wireless connection. The Palm VII is designed to offer wireless access, but Palm will soon begin shipping its Mobile Internet Kit, which is designed to provide wireless Internet for other Palm models.

To support these new wireless Palm devices, the company will add the ability to synchronize the Palm with the PC using wireless Internet connections along with instant messaging and alerts when new emails are sent from corporate email accounts.

"I thought on the conference call, (Yankowski) laid out a better road map than at any time about where the company is going," Crawford said.

The company also said it has signed a lease for its future corporate headquarters, a 39-acre site in San Jose, Calif., about a mile from its current location. The 3Com site was purchased by Societe Generale Financial Corp., which then leased the land back to Palm. Palm plans to break ground on a 500,000-square-foot building next month, although the first employees won't be able to move in until the middle of 2002.

News.com's Stephanie Miles contributed to this report.

 

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