Palm’s Slight of Hand (PALM)

Palm Inc. (NASDAQ: PALM) is one of the companies many investors have felt is an at-risk entity.  Yet its reaction after the earnings call today is not signaling that.  The company posted a loss of -$0.54 GAAP EPS and -$0.37 non-GAAP EPS on revenues of $302 million non-GAAP for its second quarter.  Thomson Reuters had estimates of -$0.32 non-GAAP EPS and $266.17 million in revenues.  It is also claiming adjusted non-GAAP margins of 25.6%.  As always with Palm, there is more than meets the eye here.

Palm shipped 783,000 smartphones, a sequential drop of 5% but a year-over-year gain of 41%; Sell-through was 573,000 units, a drop of 29% sequentially and a drop of 4% compared to a year ago.

Its cash and equivalents was $590.0 million at quarter-end, although this includes about $360 million from a public equity offering in late-September.  Further noted was cash from operations in the quarter of $16.7 million.

An issue for the accounting fans is that all related cost of revenues will now be recognized upon delivery. This accounting change will lower the amount of revenues that Palm will defer on its balance sheet but will have no impact on cash flows and does not change how Palm accounts for Palm OS products.

Without shipment expectations for this current quarter, we’d treat this as very unfinished business.  Shares closed up almost 1% at $11.72 today, and shares are down 3.5% at $11.33 on over 1.1 million shares traded in the after-hours session.  The largest wild card is of course that massive short interest of 56.49 million shares as of November’s end.  That rose from 47.6 million in mid-November and was actually the highest short interest reading of 2009 on an absolute basis.

JON C. OGG