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Palm Inc. (NASDAQ:PALM) has fallen out of favor from many long-term investors, even if it has recovered off of lows.  But after reviewing the numbers this is much better than it could been:

• Palm posted $0.08 EPS & roughly $361 million in revenues, both slightly above the estimate of $0.08 EPS & $359+ million revenues.  It also sold 689,000 units, a gain of over 20% and in-line with estimates.  But the guidance is what is acting as a load on the shares: next quarter guidance is $0.06 to $0.08 EPS versus roughly $0.10 estimates; revenues are now expected $370 to $380 million, under the $400+ million expectation. 

Shares closed down 1.6% at $16.00 today, and that is in the middle of the $13.41 to $19.50 52-week trading range.  Its recent $100.00 Centro smart(er) phone is likely going to carry less profit per unit, but now the company is going for more volume in the lower-end phone sales were none of the smart phones participate.  This new focus is a market where Research-in-Motion (NASDAQ:RIMM) has somewhat stayed out of, although sometimes certain contract signings and promotions allow competition there.  The new iPhone from Apple (NASDAQ:AAPL) has been a threat as well.

The investment and recapitalization is all but finalized with Elevation Partners and it seems the market is somewhat waiting to see how the company performs after that.  Shares are down 4% at $15.35 after-hours trading, but this is actually a pretty good reaction when you consider its position compared to BlackBerry and iPhone now.  The news might not sound great, but it may be deemed as at least a partial win because it could have been far worse.  Now the company will just have to prove it can get this back to its prominence over a long-term horizon.

• Here was the guidance of last week;
• Here was the "Foleo is History!";
• Here was losing the Cisco sales-rep smartphone exclusivity, although Cisco’s communications department did clarify that it wasn’t a total loss as they do still offer to reps;
• Old PALM Buyout rumors and here is what we thought they would have to pay to win the company over;
• and here was Research-in-Motion clearly winning out at last earnings.

Jon C. Ogg
October 1, 2007

Jon Ogg can be reached at [email protected]; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.