Palm Gives Itself a Pat on the Back

Palm (PALM) gave a sad market a tickle under the chin.

The PDA maker lost its CEO Carl Yankowski, it's been ravaged by inventory oversupplies and it has fought a vicious price war with competitor Handspring(HAND) over the past six months. The company has dropped 78% since announcing inventory problems in March. Nonetheless, it emphasized in an un-looked-for press release after the market close on Wednesday that it will beat current Street revenue expectations for its second quarter of fiscal 2002, ending Nov. 30.

Palm fell 6% in trading Wednesday to $3.41 but gained it back with a 7% rebound in after-hours trading as investors pushed the stock up to $3.65.

Two days before the quarter's end, Palm confidently announced that it would turn in $250 million to $280 million in revenue. After a first quarter featuring $214 million in revenue, Palm had projected it would turn in flat to slightly improved performance for the second quarter. Instead, the handheld maker is confident that it can make a 18% to 30% jump in revenue. Because of price pressure, however, Palm expects to turn in no better than the 7 cents a share loss the Street was counting on. Palm called its new revenue forecasts the "upper end of its prior guidance."

"They were pretty conservative with their guidance," says Joe To of Lehman Brothers, who was not overwhelmed by the announcement. He agreed that the timing probably means Palm had decent Thanksgiving weekend sales, but he stressed that this would not be a blockbuster season for PDAs, given that PCs are only a few hundred dollars more this year. To rates Palm strong buy. Lehman has no banking relationship with the company.

Palm detailed the layoffs of 250 workers but also heralded the hiring of 45 engineers engaged in software development at Be, which Palm bought during the summer. Their efforts and those of new Palm Platforms Solutions Group Chief Dave Nagel will help prepare the company's operating system segment for an eventual spinoff.

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