Updated from 4:56 PM
stepped over the Street's ankle-high expectations as it posted results after the market's close for the fourth quarter ended June 1. The handheld maker generated $165 million in revenue and a 16-cent pro forma loss, outdoing Street consensus expectations of a 20-cent loss and $144 million in revenue, as gathered by
. On May 17 Palm warned that revenue would be nowhere near the third quarter's $471 million finish but would fall in the $140 million to $160 million range. Palm edged out its operating loss prediction of $170 million to $190 million with a $153.6 million pro forma finish.
The effects of this ruinous quarter will be hard for Palm to shake off until its November quarter, when the holiday season spurs demand and channel inventories shrink.
Palm finished the regular trading day slightly down, off 4 cents, or 0.8%, to $5.19. In after-hours trading its earnings report had the stock up 82 cents, or 15.7%, to $6.05 on
Palm gave its balance sheet a workout as it took a whopping $436.5 million in charges -- for inventory and staff reductions -- and kept cash and equivalents at $513.8 million. Palm's cash fell from the $596 million it had on hand at the end of the third quarter, but the company offset some of its cash problems by juggling collections and payments to the tune of more than $200 million. Palm announced that it secured a $150 million line of credit from several financial institutions to use if it gets in a cash crunch.
Getting to the heart of the $436.5 million writedown, Palm attributed $268.9 million of the total for inventory that will not generate revenue. Additionally, Palm wrote down $59 million to offset the reduced value of 39 acres of San Jose, Calif., real estate that it bought during the quarter. It wrote down another $48 million for lowered expectations on the Web-calendaring portion of its
acquisition. CEO Carl Yankowski said in a release that cost-reduction actions position Palm "to return to profitability in the second quarter of the new fiscal year" that began in June.
Yankowski stressed Palm's efforts to clear out inventory from its channel sales partners, which is still running at a high 10-week level the company would like to reduce to four to eight weeks in the coming quarters. The amount of inventory on Palm's books went up in the quarter, from $102.5 million at the end of the third quarter to $107.8 million.
CFO Judy Bruner explained that Palm's revenue is on a slow recovery path, as a February and March decline in handheld sell-through rates reversed in May. Bruner expects a step up to $200 million to $220 million in revenue in the first quarter, with an operating loss of $60 million to $80 million. By the second quarter, Bruner expects Palm to be back at a healthy $420 million to $440 million in revenue. For the fourth quarter just ended, Palm's gross margins turned negative under the pressure of price competition and promotions. In the first quarter, Bruner sees margins increasing to 25% to 30%, while improving to 30% to 35% in the second quarter.
Still Fighting for the Enterprise
The day was a busy one for Yankowski, who earlier gave the opening keynote speech of the
trade show in Manhattan. Yankowski spent his time at the podium discussing Palm's efforts to move beyond its "grassroots" consumer base and penetrate corporate accounts. He announced two new deals along those lines: a deal under which accounting firm
will market Palm handhelds to its IT consulting clients, and an agreement to sell under the Palm brand server software made by one-time acquisition target