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Palm Fiscal Q2 Revenue Jumps 18%

Sunnyvale, Calif. — Mobile computing maker Palm enjoyed an 18 percent increase in revenue during its fiscal second quarter, recording a $444.6 million total for the three months, up from a year-ago $376.2 million.

Sales were led by growing volume of the company’s Treo smartphone and the addition of new carriers, as its business continued to benefit from rising sales of cellphone/digital organizer combos, while sales of PDAs dropped off.

Palm said it shipped more than 1 million Treo smartphones during the first half, ended Nov. 30, a number just shy of what the company shipped in all of the previous fiscal 12 months. In the second quarter, Palm shipped 602,000 Treo units to carriers, compared with nearly 332,000 year-over-year.

Sales of PDAs in the second quarter declined by about 20 percent, according to the company, sliding to 708,000 units, down from 892,000 in the same three months the prior year.

Net income soared at Palm during the second quarter, rising to $260.9 million, compared with $24.7 million year-on-year. However, the substantial increase reflected the effect of a partial reversal of a deferred tax asset valuation allowance of $226.3 million, said the company.

Excluding the tax benefit, Palm earned $24.4 million in the second quarter. This compares with net income of $27.2 million in the second quarter of last year, also excluding certain items.

For the six months, revenue moved up nearly 18 percent, to $786.8 million, compared with $649.3 million in the same period in 2004.

Net income for the six months rose to $279.1 million, up from $44.3 million in the first half of last year. Excluding certain items, net income reached $38.2 million in the first half. This compares with $49.2 million in net income for the first six months of the previous year, also excluding the items.

Palm is actively working to expand its revenue into markets outside the United States, which currently accounts for about 75 percent of its sales. For one, the company began selling Treo smartphones in China for the first time during the second quarter. It also added seven new wireless carriers during the three months.

Palm said it has successfully shifted the bulk of its business over to the burgeoning smartphone category, with smartphones this past quarter accounting for 61 percent of revenue and handheld PDAs, 39 percent. This represents an exact reversal in the mix from the year-ago second quarter, when smartphones accounted for 39 percent of revenue and handhelds were 61 percent, said president/CEO Ed Colligan.

Palm said it will introduce four new smartphones in calendar 2006, including the Treo 700w, which runs on the Windows Mobile platform, slated for early in the year. One of the four new 2006 phones will be aimed at the international market, Palm said. They also will include “next generation radio technology and new industrial design,” Colligan said.

Palm affirmed the industry trend in declining handheld sales, noting that its PDA sales fell 21 percent in units and 24 percent in dollars for the quarter, compared with the same period last year. By contrast, sales in Treo smartphones more than doubled.

The shift to smartphones is expected to continue, with 32 percent of Palm’s customers saying they will upgrade to a smartphone at their next purchase, Colligan said. He noted, “Our investment in Treos paid off. We now account for 36 percent of the U.S. converged device market, up 8 points.”

Palm, however, said it maintains a 78 percent U.S. market share in handhelds, accounting for eight of the top 10 selling products. The company cited an NPD, Port Washington, N.Y., November 2005 report. — Additional reporting by Amy Gilroy