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Thursday, September 21, 2006

Palm Survived Its Earnings

Shares of Palm (PALM) seem to have dodged a bullet in its last earnings release. The company posted revenues of $355.8 million, up 4% from last year and a tad higher than the recently cut $354.75 million estimates. Its EPS came in at $0.16 versus $0.18 estimates, but stock options and an intangible amortization charges kept the number from showing EPS at $0.21.

The company also gave the following guidance:
* Revenue to be in the range of $430 million to $450 million;
* Gross margin to be between 33.3 percent and 33.8 percent on a GAAP basis and between 33.5 percent and 34.0 percent on a non-GAAP basis;
* Operating expenses to be between $121 million and $124 million on a GAAP basis and between $115 million and $118 million on a non-GAAP basis;
* The tax rate on a GAAP basis to be 42.5 percent and, on a non-GAAP basis, 40 percent;
* Earnings per diluted share to be between $0.15 and $0.18 on a GAAP basis and between $0.20 and $0.23 on a non-GAAP basis; and
* SFAS 123R stock-based compensation expense, before taxes, to be between $6.5 million and $7.0 million and amortization of intangible assets to be $0.3 million. These amounts and the related income tax amounts are excluded from Palm's second quarter of fiscal year 2007 outlook on a non-GAAP basis.

For the remainder of the year, Palm said it will balance top-line growth and market share over profitability. In view of dynamic market conditions, including Palm's launch of new products and expansion into new geographies, the company is not reaffirming previous annual guidance at this time, and is providing guidance only for the second quarter.

Traders also got the news that PALM would allocate $250 million for share buybacks.

It really looks like traders are just breathing a sigh of relief that the situation isn't already deteriorating worse than it had offered before. The stock closed down in a weak tech market today by 7.1% down at $14.50, and shares were trading up 2.5% at $14.86 in after-hours activity.

Competitors R-I-M (RIMM) and Motorola (MOT) have hardly reacted in after-hours activity, so it doesn't appear the street is trying to assign any landmark changes to the competitive environment. With the shares toward the bottom of its $12.25 to $24.91 trading range over the last year, most of the bad news this time around seemed priced into the stock.

Jon C. Ogg
September 21, 2006
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