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Palm Beats Estimates

Investors shrug off a less-than-rosy outlook.



beat its earnings expectations, despite a previously announced sales shortfall in its fiscal first quarter.

But the Sunnyvale, Calif., smartphone maker predicted a less-than-rosy outlook.

Palm said it no longer stands by its previous annual guidance, and the company's outlook for the quarter currently under way was well below Wall Street expectations on the top and bottom lines.

Shares of Palm were up 1.8%, or 27 cents, at $14.77 in extended trading. The stock closed the regular session down $1.11, more than 7%.

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Palm's $355.8 million in first-quarter sales, a 4% increase from the year before, is within its revised guidance. The company's $16.5 million in net income, or 16 cents a share, surpassed its expected range of 13 cents to 14 cents EPS. A year ago, Palm had net income of $18.1 million, or 18 cents a share.

"We executed well on a number of fronts, significantly increasing profits and Treo sell-through," said CEO Ed Colligan in a statement. "The product announcements we made this month put us in an even better position to meet marketplace demands and extend our worldwide reach."

Palm said it expects sales between $430 million and $450 million in its fiscal second quarter, with EPS between 15 cents and 18 cents, or 20 cents and 23 cents excluding stock option expenses and other charges.

Analysts polled by Thomson Financial were expecting EPS of 28 cents a share on sales of $472.7 million in the second quarter.

Palm said it will balance top-line growth and market share over profitability for the remainder of the year. The company said that "dynamic market conditions, including Palm's launch of new products and expansion into new geographies," meant it could no longer reaffirm its initial financial targets for the full year 2007.

The soft outlook follows Palm's pre-announcement earlier this month in which it blamed lower-than-expected shipments of its Treo smartphone to retailers for its revenue shortfall in the three months ended Sept. 1. The company left its earnings estimates intact but slashed sales guidance by as much as 7%.

Palm also announced that its board of directors has approved $250 million in share buybacks.