Palm’s Turnaround On Track?

Palm announced in its earnings call on Thursday that its new platform development is on track to be completed by the end of 2008 and that handsets based on it would be released in the first half of 2009.

As I said in an earlier post, Palm has squandered its opportunity in both OS and software applications to position itself better in the market, and the stakes are now very high. Apple’s fantastic OS has got it in the driver’s seat in the handset market while other vendors are striving to market a differentiated OS.

Palm, Inc. (NASDAQ: PALM) on Thursday reported its Q109 results that beat estimates. Its losses widened but revenue grew on strong sales of smartphones driven by the continued success of the Centro. Q1 revenue grew about 2% to $366.9 million from $360.8 million last year. Net loss widened to $41.9 million, or $0.39 per share compared to net loss of $0.8 million or $0.01 per share. Excluding charges, net loss was $12.8 million, or $0.12 per diluted share. Analysts expected a loss of $0.18 per share on revenue of $325 million. Including charges, net loss was expected to be $0.22 per share.

Smartphone revenue grew 10% to $333.8 million driven by smartphone sell-through of 1,029,000 units, up 49%. ASPs declined from $331 in Q4 to $284 per unit. Palm is working hard to improve gross margins by reducing Centro costs: gross margin improved to 26.6% versus 25.3% in Q4. However, margin improvement can be significant only with a change in mix. The company recently launched the Windows Mobile-based Treo Pro, which comes with 3G radio, Wifi and GPS. It also launched Treo 800W for Sprint. Treo Pro will be sold unlocked.

The handheld business, however, continued on its downward trend and is expected to continue to do so. The handheld segment accounted for $33.1 million in revenue, and sell-through declined 49% to 166,000 units.

Operating expenses were sequentially higher at $113.6 million due to increased marketing expenses associated with the new launches. Palm is striving to keep its operating expenses down to $110 million per quarter. This will be difficult, however, as new products are launched.

On the personnel front, Palm has appointed Jeff Devine as senior vice president of Operations. Jeff was the vice president of Global Customer Logistics at Nokia. Palm has also reinforced its Windows Mobile team with recruits from Microsoft and Motorola.

Palm is currently trading around $7.7 versus a 52-week low of $4.21 on March 24. Market cap is about $830 million.