Palm Sees Revenue Slap (PALM)

Palm, Inc. (NASDAQ: PALM) posted its third quarter results and disclosed that it had a net loss of $98 million or -$0.89 EPS after items.  The loss on a non-GAAP basis was -$94.7 million or -$0.86 EPS on revenue of $90.6 million. Estimates were -$0.59 EPS on more than $108 million in revenue.  Shareholders better hope it is right about being on the verge of entering a new era, because the metrics of today are just awful.

Smartphone sell-through for the quarter was 482,000 units, down 42% year-over -year. Its smartphone revenue was $77.5 million, which is a 72% drop year-over-year.  Guess what that means for average selling price…..

The company is calling this a challenging transitional period, but says it is “poised to usher in a new era at Palm.”    Transition is an understatement.  Those revenues look down well over 50% year-over-year.

Even if you try to smooth things over on an EBITDA basis, that loss was in at -$81.9 million.

The company’s cash, cash equivalents and short-term investments balance was $219.4 million at the end of the third quarter of fiscal year 2009.  Palm recently received an estimated net proceeds of approximately $103.6 million after expenses.

Palm has also indicated that since it expects to periodically provide new software features free of charge to Palm OS customers, including the recently announced Palm Pre™, it will recognize Palm webOS product revenues and related standard costs of revenues on a subscription basis.  This boils down to being based on the product’s estimated economic life, which is currently 24 months.  Palm will also be recording deferred revenues and deferred costs of revenues on its balance sheet, and amortizing them into earnings on a straight-line basis over the estimated economic product life.

Palm’s issue is not over how it will record revenue.  Palm’s issue is that the new Pre phone better be as big and solid as the company has touted to the media.  Recently, it had to talk some “irrational exuberance” down that was out in the media.  The good news is that the recent cash raise should give it ample marketing money to develop and launch this new upcoming Pre.  In the world of smartphones right now in the midst of a recession, it is going to need it.  Probably all of it.

Shares closed down almost 5% at $7.71 today, and are down almost 3% at $7.51 in after-hours trading.  What is surprising is that the drop is not worse.

JON C. OGG