Updated from March 22

PalmOne ( PLMO) shares gained strength before the bell Tuesday as the handheld-device maker roundly beat Wall Street expectations for the third quarter of fiscal 2004 and guided well above the consensus estimate for the quarter now underway.

PalmOne shares were recently up $2.56, or 18.5%, to $16.40 on the Instinet premarket session. They got a boost early Tuesday when Bear Stearns raised its rating to peer perform from underperform.

In PalmOne's first full quarter of operations as a standalone entity, following its spin off from Palm, it reported $242.5 million in revenue for the quarter ending Feb. 29, up 22.6% from last year's levels. Chief Executive Officer Todd Bradley said the company had seen "excellent demand" for its Treo smartphone.

Net loss was $9.3 million, or 20 cents a share, compared with a net loss of $172.3 million, or $5.93 per share, a year earlier. The current year's loss included restructuring charges of $4.5 million and amortization of intangible assets and stock-based compensation of $5.4 million. Excluding those charges, net income amounted to a penny per share.

On a pro forma basis, analysts were expecting a loss of 33 cents a share on $211.5 million in revenue, according to First Call.

PalmOne's average selling price of $233 in the just-ended quarter grew 38% from the average price of $169 for the same quarter a year ago. Gross margin rose to 28.9% from 23.8% a year ago.

In the quarter ended in February, the company drew 72% of sales from handhelds and 28% from so-called smartphones.

PalmOne guided for revenue of $245 million to $255 million, well above the consensus estimate for $227.3 million. That forecast assumes handheld revenue of $175 million to $180 million and Treo smartphone-related revenue of $70 million to $75 million. Chief Financial Officer Judy Bruner predicted the company will be "close to breakeven or modestly profitable on a generally accepted accounting principles basis."

PalmOne guided for non-GAAP net income of $2 million to $10 million in the fourth quarter; analysts were expecting a loss of 15 cents leading up to Monday's report.