Palm's awful quarter in sad contrast to a buoyant Q3 at RIM

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Palm's awful quarter in sad contrast to a buoyant Q3 at RIM

By CAROLINE GABRIEL

Published: 18 December, 2009

Contrasting fortunes for Palm and RIM, two US smartphone makers looking to break out of their enterprise niches and take on Apple and Nokia. Palm posted a wider than expected loss in its second quarter as sales declined, boding ill for its make-or-break Pre device; while RIM did better than anticipated in its third quarter, boasting of record BlackBerry shipments and downplaying the intensifying competition in the smartphone segment.

Palm's shares fell more than 6% in after-hours trading as it reported losses (after paying preferred dividends) of $85.4m or 54 cents per share for its Q2, ended October 31 (37 cents excluding one-time items). This was a least less than the year-ago loss of $508.6m (which included a writedown charge of $396.7m), but of course in late 2008, it was still in a transition phase that was understood by the markets, which were waiting eagerly for the Pre to change Palm's fortunes. Despite a very impactful launch last spring, the Pre has failed to make the same splash in commercial terms.

Revenue slid 59% to $78.1m. Analysts were expecting a far smaller loss of 32 cents per share on revenue of $266.2 million. Palm shipped 783,000 smartphones during the quarter, up 41% year-over-year but down 5% from the first quarter - worrying in a quarter that saw the start of the holiday sales build-up. Phones actually sold slid to 573,000, down 4% year-on-year and 29% sequentially.

"We're still in the early stages of a long race, and we're energized by the opportunity to compete in this exciting market," said Palm chairman and CEO Jon Rubinstein said in a statement. "We remain confident that Palm's innovative product design capabilities, integrated cloud services and the differentiated and delightful Palm webOS experience will provide the foundation for our sustained success."

His words will have been uttered through gritted teeth as the former Apple executive saw his most direct competitor, RIM, surprising Wall Street in a more positive way, with a 59% increase in Q3 net income to $628.4m or $1.10 per share. Most pleasingly for RIM backers, there were signs that its difficult attempt to win consumers to its business focused BlackBerry platform were working - more than 80% of new subscribers were non-corporate customers. Shares were up more than 12% in after-hours trading as the firm reported a 41% revenue hike year-on-year, to $3.92bn.

RIM said it added 4.4m new net BlackBerry subscribers, bringing its total base to about 36m, and it shipped 10.1m devices during the quarter. It issued an upbeat forecast despite the gathering clouds of increased competition - from the rejuvenated Motorola and buoyant Apple, plus Nokia promising a serious smartphone assault in 2010, and Samsung looking to get more serious about the BlackBerry territory as it directs its market share rampage at smartphones. Despite all these threats, RIM said it expects revenue to be in the range of $4.2bn to $4.4bn and earnings per share between $1.23 and $1.31 in the current quarter. Wall Street is expecting EPS of $1.19 on revenue of $4.24bn. RIM said it also expects to add 4.4m to 4.7m net new subscriber accounts.

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