Palm Back In The Smartphone Race

On June 6, Palm (NASDAQ:PALM) launched the Palm Pre, a great product that has brought the company back into the smartphone race. Yesterday, it reported fourth quarter results that beat analyst estimates. Palm also reported that the number of applications downloaded from the Palm App catalog has grown from 150,000 at launch to over 1 million. Let’s take a closer look.

There is an increasing focus on applications in the smartphone market, and Palm seems to be making the right moves. It plans to open access to its software development kit (SDK) by the end of the summer. Right now, Palm has about 40 applications in its App Catalog, compared to more than 50,000 applications in the iPhone App store.

Revenue in the fourth quarter ending May 29, 2009 was down 71% to $86.8 million. Net loss widened to $91.5 million or $0.78 per share from loss of $41.1 million or $0.40 per share last year. Excluding charges, loss was $0.40 per share. Analysts expected loss of $0.62 on revenue of 80.6 million. Q3 coverage is available here.

Gross margin was 23.1%, down from 25.2% last year. Palm ended the quarter with $255.1 million in cash, including $103.5 million in net proceeds from the public equity offering in March.

Adjusted smartphone revenue was $110.5 million on shipment of 351,000 units versus $77.5 million on shipments of 330,000 units in Q3. Revenue improvement was mainly due to initial shipments of the Palm Pre and to higher Treo Pro volumes, but improvement was offset by slowing sales of the company’s Centro product line.

For the full fiscal year 2009, Palm reported revenue of $735.9 million versus $1.32 billion last year. Net loss was $732.2 million compared to $105.4 million in 2008. Gross margin was 21.7%. Palm shipped 2,407,000 smartphones during the year, down 25%.

Right after Jon Rubinstein successfully delivered the Palm Pre came the announcement that he is taking over the role of CEO on June 12. After 16 years as CEO, Ed Colligan will join Elevation Partners. Rubinstein joined two years ago from Apple to bring innovation back to the company. Today, Palm has a good product on its hands, one that has changed its position in the market. To say the least, Rubinstein truly deserves this promotion and I hope he will keep the momentum going.

Rubinstein says: “My highest priority is very straightforward — execution. With excellent execution comes greater efficiency and cost effectiveness, which in turn makes our business model more scaleable as we translate great innovation into financial success.”

Palm has been in the smartphone business for years, and I hope its innovative product and new leadership will mean a return to its old glory.

The stock is currently trading around $16.20 with market cap of about $2.23 billion. This marks a new peak from 52-week high of $15.25 reached on June 16.