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Highlights From PALM's Q1 Conference Call: 823K Smartphones Shipped in Q1 vs. 351K in Q4; Issues Mixed Guidance


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September 18, 2009 11:28 AM EDT
PALM Hot Sheet
Today's EPS Names:
VSNT, CIM, KH, More
Palm, Inc. (Nasdaq: PALM) reports Q1 loss of $0.10, 14 cents better than the analyst estimate of ($0.24). Revenue for the quarter was $360.7 million, which compares to the estimate of $297.74 million. Shares jumped last night after hours, but then fell as Q2 was announced. Today, shares are down around 3%.

Highlights From PALM's Q1 Conference Call:

  • Sees Q2 adj-sales of $240-$270 million, versus the consensus of $344.36 million. Sees FY10 adj-revenue of $1.6-$1.8 billion, versus the consensus of $1.57 billion.
  • (CEO) Deployments of the Pre within large companies are on the rise and just recently Gartner placed the Palm Pre in the appliance level category signifying that Palm webOS and the Palm Pre are suitable for enterprise use.
  • We're looking forward to announcing equally strong strategic relationships with additional carriers. We are already under contract with new partners to bring our Palm webOS products to more customers in new and existing markets this fiscal year.
  • Our developer program is one of our highest priorities. We've had tens of thousands of SDK downloads since making the software broadly available in July and our beta App Catalog is expanding every week with quality offerings from our early access partners.
  • (CFO) Non-GAAP adjusted revenues for Q1 totaled 360.7 million, a more than threefold increase over Q4 of '09.
  • We shipped a total of 823,000 smartphone units in Q1 versus 351,000 units in Q4.
  • Smartphone sell-through for our August quarter came in at 810,000 units versus 460,000 units in our May quarter.
  • Our non-GAAP adjusted gross margin for Q1 came in at 27.9%, a 1.1 percentage point increase versus our adjusted gross margin of 26.8% in Q4. The sequential margin improvement was a result of the shift in our product mix to Palm Pre.
  • Our sales and marketing expense increased by a little over 22 million versus last quarter due to increased marketing for the Palm Pre launch including our network TV and online ad campaign which kicked off in June.
  • We'll continue to invest in sales and marketing throughout the year. In particular, our November quarter marketing spend will increase versus Q1 as we support two new launches, the Palm Pre with Telefonica and Palm Pixi with Sprint while continuing our current promotional efforts.
  • We also increased our R&D spending versus last quarter reflecting our commitment to a new product development.
  • Turning to the balance sheet now, our accounts receivable balance increased to 76.6 million versus 66.5 million at the end of Q4 due to stronger sales in the quarter offset in part by improved collections.
  • With the launch of Pre, our inventory levels in Q1 increased to 27.8 million from 19.7 million in the May quarter.
  • DSI improved from 21 days in Q4 of '09 to 10 days in Q1 of 2010 reflecting efficiencies in the Pre supply chain and expedited delivery schedules.
  • Our cash, cash equivalents and short-term investments balance at the end of the quarter was 211.8
    million and cash used in operations was 45.1 million down from 72.4 million in Q4.
  • Looking ahead we expect the timing and size of product launches planned for Q2, coupled with a lower anticipated demand for our legacy products to yield Q2 non-GAAP revenues below the results we posted in Q1.
  • On a non-GAAP adjusted basis we anticipate revenues for Q2 to be between 240 and 270 million.
  • (Q&A) Just very briefly, could you let us know is Palm being asked by carriers to provide above the line marketing supports and are you also being asked by carriers to customize the Palm devices for their own UIs and platforms? (A)We don't really talk about the actual agreement with the carriers. As far as the platform itself, we're very excited about webOS as are the carriers we talk to. And so, while we do provide applications such as Sprint's got navigation and it's got NASCAR and a variety of other types of applications like that. We do bring those kind of applications on. We're - our view is that the webOS experience is a very strong one and we've gotten that feedback from our carrier partners as well.
  • Just two questions here I guess, one, I know it's not your policy to break out sales by device but I do believe there is a large range on the sale side for the legacy units. Could you give us any sense of the Pre during the quarter and maybe if not then looking forward how should we think about non-webOS products such as Treo longer term? And then the second question would be expectation for the Pixi at Sprint, with this coming as a lower priced device, you think this helps store traffic to drive more Pre sales or do you think it cannibalizes the higher priced Pre, kind of your expectations with product at that carrier? (A)Want me to do the second one first, okay, so I'll answer your second one first. Again, we're big believers in families of products, and yes, the Pixi is going to be a more cost effective offering. And so, we expect that people will come in the stores and some will come in to buy a Pixi and will buy a Pre and some will come in and have just the opposite effect and that's been my experience in the past. And we're very happy to be able to have both products out in our family now and have them available for our customers for the holiday season.(A)Hey Mike, it's Doug. Just on your first question, while we don't give out specifics on SKUs, when you look at our sell-in and sell-through for the quarter, the vast majority of that activity does relate to the Palm Pre.

Palm, Inc. provides mobile products for individual users and business customers worldwide.

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