Palm’s Air Ball (PALM)

Palm, Inc. (NASDAQ:PALM) has just come out with guidance for the end of its quarter.  As you might have guessed before reading any further, it lowered guidance.  Lower guidance is one thing, but this looks significantly lower than anything you might have guessed.

The smartphone seller now expects second quarter revenue of $190 million to $195 million.  Thomson Reuters (First Call) had estimateslisted as being $330.7 million, and it looks like the lowest estimate was for $299 million.  To show you how bad of a drop off this is looking like, its revenue were $366.8 million in its last quarter.  Revenue in its second quarter of fiscal year 2008, ended November 30, 2007 were $349.6 million.

Palm now sees this quarter’s grossmargin as a percentage of revenue to be between 18% and 19% afterinventory component purchase commitment charges $10 to $15 million.  That is a particularly ugly revenue warning.

Palm is saying that the revenue decline from the company’s fiscal firstquarter (sequential) and its second quarter of 2008 (year over year) isthe result of reduced demand for maturing smartphone and handheldproducts.

Palm had expected these factors to pressure revenue, but it noted thatthe difficult economic environment has greatly intensified the negativeimpact on product sales.  The company is now implementing several cost-savings initiatives:

• reducing its U.S. work force,
• consolidating its European operations,
• shifting responsibility for Asia Pacific sales, marketing and administrative support to its U.S. offices.

Palm expects that by its fiscal Q4-2009, these and other cost-savingsinitiatives will reduce quarterly operating expenses by approximately$20 million versus last quarter levels.  These charges are expected tototal between $7 and $9 million this quarter.

The company also expects its cash and short-term investments balance tobe between $210 million and $220 million at the end of its secondquarter.  After today’s 21% drop to $1.88, its market cap is now listedas $204.7 million.  Shares are down another 6% at $1.75 after itsguidance in the after-hours session.

We do not like to kick a company too hard while it is down, but this is pretty pathetic.  Actually, there is nothing pretty about it at all.  Maybe having the transvestite-looking Santa Claus on its home page is not helping to lure in the right buyers.

Jon C. Ogg
December 1, 2008