Palm pins hopes on Pre to reverse slump

Matias Duarte demonstrates the Palm Web OS platform on the new Palm Pre handset. Photo / AP

Palm, maker of the Treo and Centro phones, reported third-quarter sales that missed analysts' estimates by almost 50 per cent, citing dwindling orders for its older models.

Revenue fell to as little as US$85 million ($162 million) in the period ended February 27, California-based Palm said yesterday.

Analysts on average estimated sales of US$160.1 million, according to a Bloomberg survey.

A delay in shipping the Treo Pro also hurt revenue.

The company, a pioneer in mobile devices with its Pilot model more than a decade ago, is introducing the web-capable Pre phone this year to win back customers from Apple and Research In Motion, and return to profitability after six straight quarters of losses.

"The fiscal 2010 sales assumptions were going to be low for the Treo or Centro, now they are going to be even lower," said Matt Thornton, an analyst at Avian Securities in Boston. "Everyone's waiting for the Pre."

Palm said it had "sufficient" cash and cash equivalents of US$215 million to US$220 million at the end of February and plans to boost cash levels to combat the economic slowdown.

The company may do so by selling some stock and warrants held by investor Elevation Partners.

The company said it was entitled to retain any net profit realised from the remarketing of those securities.

Elevation, whose managing directors include U2 singer Bono and private-equity investor Roger McNamee, agreed in December to pay US$100 million to lift its stake in Palm to 39 per cent from 25 per cent.

Consumers spent less on devices last quarter as they attempted to cope with the "challenging economic environment", Palm said.

The US economy shrank at a 6.2 per cent annual pace in the period, the worst performance in more than a quarter-century.

Delivery of the Pre is still set for the first half of this year "but as expected we've got a difficult transition period to work through", chief executive Ed Colligan said.

- BLOOMBERG