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Palm beats the Street
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June 28, 2000: 6:45 p.m. ET
Handheld computer maker reports profit of 3 cents per share; sales up 101%
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NEW YORK (CNNfn) - Handheld computer maker Palm Inc. on Wednesday reported a fiscal fourth-quarter operating profit of 3 cents per share, beating Wall Street's expectations by 2 cents as sales more than doubled from the same period a year ago.
Excluding separation costs related to its spin-off from 3Com Corp. last March, Palm reported earnings of $16.9 million, or 3 cents per share, during the quarter ended June 2. That's up from $6.8 million, or a penny per share, during the same period last year.
Analysts polled by earnings tracker First Call had expected Palm to turn in a penny-per-share operating profit for the most recent quarter as well.
For the full fiscal year, Palm reported total revenue of $1.1 billion, up 88 percent from $563.5 million in fiscal 1999. The company's net income for the year was $45.9 million, or 9 cents per share, compared with $29.6 million, or 6 cents per share, in fiscal 1999.
Palm (PALM: Research, Estimates) shares fell 1/2, or 1.9 percent, to 26-3/8 on Nasdaq ahead of the earnings announcement after the formal trading session ended. They added 1-3/4, or 6.6 percent, to 28-1/8 in after-hours trade.
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Including separation costs, Palm's net income for the quarter was $12.4 million, or 2 cents per share. At $350.2 million, sales during the quarter more than doubled from $174.3 during the corresponding period last year and came in well ahead of the $295 million the company had told Wall Street to expect.
Executives at Palm in Santa Clara, Calif., attributed the strong result to greater-than-expected demand for their products during the quarter, adding that demand for its popular "Palm Pilot" devices continues to soar.
"Even with this strong performance, demand for Palm products still outstrips supply," Carl Yankowski, Palm's chief executive, told analysts and investors in a conference call Wednesday evening. The company has been unable to meet the demand primarily because of shortages of key components such as flash memory, he said.
 The company shipped more than 1.1 million devices in the quarter, which increases its cumulative shipments to more than 7.1 million. "This indicates that Palm and the market are growing faster than previous analyst estimates," Yankowski said.
When the company reported its fiscal third-quarter results, Judy Bruner, Palm's chief financial officer, said the company's growth was likely to slow in the most recent quarter and into the current fiscal year, primarily due to the component shortages.
At that time, she also provided a revenue forecast of $280 million to $295 million for the fiscal fourth-quarter and indicated that the company could post an operating loss during the period. "This would have been the case had we shipped in the range of our revenue guidance," Bruner said.
The 1.1 million units were "significantly more" than the company had expected to ship, and Bruner credited Palm's close relationship with key suppliers for the stronger-than-expected results.
For the past two quarters, demand has been stronger than the company has anticipated, and Bruner revised her fiscal year revenue forecast for the company on the expectation that demand will continue to grow. "We are bullish about our growth," she said.
In fiscal 2001, Bruner said Palm will likely post year-over-year revenue growth comparable to that of fiscal 2000, with total sales coming in between $1.9 billion and $2 billion. For the current quarter, sales should be between $375 million and $390 million, she said.
Faulty memory chip will not have material effect
Separately, Palm on Wednesday said it had received defective memory chips from one of its suppliers which were installed in roughly 3 percent of the Palm IIIc, IIIxe, and Vx handhelds it has shipped since last October.
The company said that units that have the faulty chip could have information such as telephone numbers, to-do lists, calendar and data entries damaged. The company would not say which supplier provided the faulty chips.
Palm has made a software patch available today to address the issue in the Palm IIIc and Palm Vx products, and said a software patch for the Palm IIIxe will be available shortly. It is available at Palm's Web site at www.palm.com/support/dram.
Bruner said the glitch will not have a material financial impact on the company. 
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