Palm moves into the black

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Palm moves into the black

Palm announced a $5.7m profit in its second-quarter earnings yesterday, calling it an endorsement of both their low-cost Zire product for consumers and the enterprise Tungsten T device.

Combined revenues for its two operating units, Palm Solutions Group and PalmSource, were $265m for the second quarter of Palm's 2003 fiscal quarter ending 29 November.

Although revenues were down 9% from second-quarter earnings in 2002, they were up 54% from the first quarter of 2003.

Pro forma net income in the second quarter using GAAP (Generally Accepted Accounting Principles) were $5.7m, compared with a pro forma net loss in the second quarter of 2002 of $36.6m.

"This is not a reflection of rapid change in market conditions," said chairman and chief executive officer Eric Benhamou, who pointed out that handheld industry growth rates were still declining, although the rate of decline had slowed.

He added that the return to profitability did not reflect less intense competition or indiscriminate cost-cutting on the part of Palm, but improved execution.

Among the components reflecting that were increased gross margins, from 20.5% to 32.8% quarter on quarter; reduced operating expenses, from $113m to $84.3m; and reduced inventory from $78.6m on hand to $38.5m.

Benhamou said another key driver toward profitability was the introduction of the Zire and Tungsten products.

Gerry Purdy, principal analyst at MobileTrax, described Benhamou's view as "cautiously optimistic" over the long-term growth of the company.

"If those licensees can keep Palm's ease of operation so it continues to have an edge over the Pocket PC while developing similar capabilities to the Pocket PC, it is going to be a very interesting battle with Microsoft and the Pocket PC in the enterprise," said Purdy.

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