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palmOne Q2 Revenue Soars 39%

Sunnyvale, Calif. — Handheld computing and communications solutions company palmOne posted a 39 percent increase in fiscal second-quarter revenue and a 10-fold increase in operating income.

Revenue climbed 39 percent to $376.2 million in the three months, ended Nov. 30, up from $271.2 million in the year-ago period.

Operating income for the second quarter soared to $30.4 million, which compares with $2.6 million in the same three months in 2003.

Net income for the second quarter came in at $24.7 million, which pushed palmOne into the black, compared with a net loss of $4.1 million in the same quarter a year ago. Gross margin rose to 29.1 percent in the quarter from 27.1 percent year-on-year.

Net income in the second quarter, excluding the effects of amortization of intangible assets and deferred stock-based compensation, hit $27.2 million, which compares with $5.5 million in the second quarter of last year, excluding amortization, deferred compensation, restructuring charges and a loss from discontinued operations.

The company reported inventory turns of 44 times in the second quarter, compared with 26 times in the year-ago three months. It shipped about 1.6 million Zire, Tungsten and Treo family devices during the quarter. Unit shipments to date total about 29 million.

However, the company’s outlook for the holiday quarter, its fiscal third, was not as promising as the second. Sales are expected to reach $280 million for the current three months, ended next February, but palmOne pinpointed the decline in revenue on what is typically expected from handheld seasonality as well as the timing of its Treo 650 rollout. Much of the revenue from this handheld computer-based cellphone will not be posted until the fiscal fourth quarter.

The company said it shipped more than 332,000 Treo smartphones in the second quarter, representing a sequential increase of more than 22 percent. It also shipped more than 1.2 million Zire and Tungsten handhelds, and said it met its goal of capturing Sony’s market share, since Sony exited the market.

Todd Bradley, palmOne CEO, said, “In October, our share was 69 percent according to NPD … up from 55 percent in the same period last year. This represents the capture of Sony’s former share and then some.”

The company said it continues to shift its resources over to the faster-growing smartphone side of the market, noting that “Growth in smartphones is largely about carrier growth and product certification.” The company said it will roll out its Treo 650 to additional carriers during the next two quarters, and added, “The goal is to be able to roll out new smartphone platforms to multiple carriers simultaneously.”

In the six months, palmOne revenue jumped to $649.3 million, up from $439.8 million year-over-year. Operating income and net income both moved into the black for the six months, with operating income rising to $53.5 million, compared with a year-ago loss of $12.9 million, and net income climbing to $44.3 million, compared with a net loss of $25.9 million in the first six months of last year. — Additional reporting by Amy Gilroy