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Palm reports 44 percent profit drop

Company shifts portfolio from PDA to smartphone

Palm’s troubles continued on Thursday as the company posted a profit of $15.4m for the fourth quarter, a 44 percent drop from its $27.2m mark one year earlier, despite strong sales of its Treo smartphone.

The company reported revenue of $401.3m for the quarter ending 1 June, down slightly from the $403.1m it earned in the same quarter in 2006 and also below Wall Street's forecast of $406.6m, according to analysts polled by Thomson Financial.

The results come just weeks after the company faced rumours it would be acquired by rivals Motorola or Nokia. Instead, Palm raised $325m of extra money by selling a 25 percent stake of the company to private equity investors.

Palm is shifting its product portfolio from personal digital assistants (PDAs) to smartphones, which are far more popular and offer a potential for greater profit margin because of their higher price tags. In the past quarter, Palm drew 86 percent of its revenue from smartphone sales, a huge swing for a company that in 1996 drew its entire revenue from the Palm Pilot PDA. Palm's smartphone revenue of $344.2m for the quarter was up 14 percent from the same quarter in 2006.

"Our record Treo sell-through reflects strong fundamentals in the core focus areas of our business," said Palm chief executive officer, Ed Colligan. "I'm confident that in fiscal year 2008, more and more standard handset customers will demand the capabilities and ease of use of Palm smartphones, which aligns us well for future growth and profitability."

Despite Colligan's optimism, Palm's smartphone sales did not help its results. Palm earned a profit of $0.15 per share in the fourth quarter, matching analysts' expectation of $0.15 but coming in far below the $0.25 it made a year earlier.

Looking into the future, the company predicted revenue between $355m and $365m for the coming quarter, the first period of Palm's fiscal 2008. If the company meets the higher end of goal, it would beat its mark of $355.8m in revenue for the first quarter of 2007.

However, Palm may be distracted by change in its boardroom. As a condition of buying a large share of the company, the investment group Elevation Partners insisted on installing a new chairman, former Apple vice president Jon Rubinstein. Palm also raised questions among investors in May when it launched the Foleo, a miniature laptop intended to sell as a "smartphone companion." That product quickly faced criticism that its $599 price was too high and that its 10in screen was too large.

Also on Thursday, Palm reported revenue of $1.56bn for the full fiscal year 2007, down 1 percent from the $1.58bn it earned in 2006. Palm earned profit of $56.4m for the year, far below its $336.2m profit in 2006, although the 2006 figure included a one-time tax rebate of $219.5m.


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