PalmOne Q2 revenue up on higher prices, smart phones

Higher average selling prices for PDAs (personal digital assistants) and smart phones helped boost second-quarter revenue at PalmOne Inc. in the company's first quarter with financial results from newly acquired Handspring Inc. and without PalmSource Inc., PalmOne said Thursday.

Second-quarter revenue for PalmOne's 2004 fiscal year was US271.2 million, up 5 percent from last year's second-quarter revenue of US$257.9 million. Even though unit shipments declined from 1.44 million units in last year's second quarter to 1.41 million in this year's second quarter, the average selling price of PalmOne devices rose from US$160 to US$172 on the strength of new products such as the Tungsten T3 and the Treo 600, PalmOne said.

PalmOne's second quarter ended on Nov. 30, one month after the company acquired Handspring and spun off Palm OS developer PalmSource.

The Treo 600 smart phone was the crown jewel of the Handspring acquisition, which will help PalmOne carve out space in the growing smart-phone market, said Todd Bradley, president and chief executive officer, on a conference call Thursday.

"We're at an inflection point in our history," Bradley said. The market for unconnected PDAs has declined steadily over the past few quarters, but sales of smart phones that combine a cell phone with a PDA are expected to rise sharply over the next few years, according to analysts.

The Milpitas, California, company plans to add more wireless carriers for the Treo 600 and will probably reduce the price of the device as it recognizes cost savings from increased demand and better relationships with component suppliers, said Ed Colligan, senior vice president and general manager of the wireless business unit.

PalmOne is also hoping its new focus on the smart phone market will help make the company profitable. In what is considered its strongest quarter on a seasonal basis, PalmOne recorded a net loss of US$4.1 million in accordance with generally accepted accounting principles (GAAP).

On a non-GAAP basis, which excludes the amortization of intangible assets, restructuring charges, and losses from discontinued operations, the company posted net income of US$5.5 million, or US$0.14 per share. This compares with a non-GAAP net income of US$8.5 million or US$0.29 per share in last year's second quarter.

The company posted a net profit of US$2.6 million from continuing operations, which includes the results from one month with Handspring's products and expenses, said Judy Bruner, senior vice president and chief financial officer. The company posted a net loss of US$6.8 million from discontinued operations, which includes the two months in which PalmSource was part of the overall company, Bruner said.

PalmOne continues to do the majority of its business in the U.S., which accounted for 58 percent of its revenue in the second quarter.

Looking ahead to the company's third fiscal quarter, Bruner predicted revenue would fall between US$200 million and US$215 million. However, the company will post a net loss of about US$15 million in the third quarter as it restructures to devote more resources to higher growth and higher margin products such as the Treo 600, she said.

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