Palm Guidance Better Than It Could Have Been (PALM)

September 19, 2007 by Douglas A. McIntyre

Palm, Inc. (NASDAQ:PALM) has issued guidance and said it expects revenue to be in the range of $359 million to $361 million for its first quarter of fiscal 2008.  Earnings per diluted share are expected to be $(0.01) to $0.00 on a GAAP basis and $0.08 to $0.09 on a non-GAAP basis.  First Call estimates are $0.08 EPS (non-GAAP) and total revenues are estimated at $359.9 million, so this is in-line to a hair above the mid-point expectations.

Smartphone revenue is expected to be in the range of $300 million to $302 million for the quarter, and smartphone sell-through for the quarter is expected to range between 685,000 units to 690,000 units.  Gross margin is expected to be in the range of 36.0 percent to 36.2 percent on a GAAP basis and 36.1 percent to 36.3 percent on a non-GAAP basis.

Cash, cash equivalents and short-term investments balance is expected to be approximately $627 million and Palm is initiating the process of marketing its proposed Senior Secured Loan Facilities in conjunction with its recapitalization transaction, which was approved by shareholders on Sept. 12, 2007.  So it appears that Palm is going to get to shrink itself as it originally attempted, although this may be one of the last transactions of its type until credit and private equity markets get better.

We recently noted how Palm was no longer going to be the exclusive provider of smartphones for Cisco Systems’ mobile workforce, and that was after the company decided to dump it Foleo initiative (which we have now dubbed Faux-leo).

Palm shares are only down about 1% after-hours on this news at $15.62.  The guidance isn’t really great, but it is far better and a lot "less bad" than we would have expected based upon the recent news.  The question that remains is how the guidance for the next two quarters will be.  Palm’s 52-week trading range is $13.41 to $19.50.

Jon C. Ogg
September 19, 2007