Palm profits drop but Treo sales soar

Palm's quarterly profits fell despite growing sales of its Treo smart phone, the handheld device maker said on Thursday.

The Milpitas, California-based hardware company formerly known as PalmOne said its fiscal first-quarter net income was $18.2m, or 35 cents per share. That's down from $19.6m, or 38 cents per share, that Palm reported in the same period last year. Its first quarter ended on 2 September.

Excluding special items, the company posted a profit of 41 cents per share. On that basis, the company beat analysts' average estimate of 36 cents per share,

Palm CEO Ed Colligan said he is pleased with the momentum behind the Treo.

During a conference call with analysts on Thursday, he said: "We're clearly benefiting from wireless email but we are also positioned well with our Treo line as we see the transition to 3G networks and move from analogue to digital media." Palm said it shipped 470,000 Treo units for the quarter, which represents an increase of more than 160 per cent from the same time last year.

The company said nearly all of Palm's smart-phone shipments are for its Treo 650, which debuted in October 2004. The first Treo 600 sold in 2003 after Palm acquired the technology from Handspring. Palm eventually bought Handspring as well.

Palm said its LifeDrive devices and Tungsten and Zire handhelds did not perform as well as Palm had hoped. The company blamed the drop in shipments of as much as 22 per cent on slow sales in Europe over the summer, lagging sales in the Asia-Pacific region and a general decline in the demand for PDAs.

Colligan promised to improve video playback and camera capabilities on future models of the LifeDrive.

Despite success with its Treo, the company is currently lagging behind BlackBerry maker Research In Motion and Nokia in the smart-phone category. Palm shipped 642,000 units in the second quarter, compared with 840,000 BlackBerry devices, according a Gartner report.

Market researcher Canalys said 12.2 million devices that could be classified as smart phones shipped in the second quarter, more than double the 5.9 million shipped in the same quarter a year ago.

For the next three months, Palm said it expects revenue of $435m to $440m. The company's gross margin is expected to be in the range of 30 per cent and 30.5 per cent. Operating expenses on a GAAP basis are expected to be between $100m and $102m. Using non-GAAP accounting, operating expenses of $97m to $99m are expected.

Reuters contributed to this report

Michael Singer writes for CNET News.com