Palm sales plummet as Pre waits in the wings

As its original OS faded away, unit sales of phones dropped 42 percent in the most recent quarter.

The Palm Pre smartphone will mark the long-awaited debut of the new Palm operating system called WebOS.

The Palm Pre smartphone will mark the long-awaited debut of the new Palm operating system called WebOS.

Palm's revenue plunged in its most recent quarter as the struggling company, preparing for the release of its next-generation device, sold 42 percent fewer smartphones than in the same period last year.

The 72 percent fall in smartphone revenue, to US$77.5 million, underscores the importance of the upcoming Palm Pre and WebOS to the company's future. Palm announced the Pre and its brand-new operating system at the Consumer Electronics Show in January and has said the current Centro phone will be the last device to run the original Palm OS. The Pre will begin shipping on an undisclosed date later this year.

In its fiscal third quarter, ended Feb. 27, Palm lost $98 million, or $0.89 per share, wider than its loss of $57 million, or $0.53 per share, a year earlier. Excluding special items, such as stock-based compensation and restructuring charges, the company lost $94.7 million, or $0.86 per share. That was worse than the consensus forecast of analysts surveyed by Thomson Reuters, who expected a loss of $0.59 per share.

Total revenue was $90.6 million, compared with the analysts' forecast of $105 million.

"We're proceeding through a challenging transitional period, however our current results shouldn't overshadow the tremendous progress we've made against our strategic goals," Palm President and CEO Ed Colligan said in a press release.

The Pre will have a touch screen plus a physical keyboard, as well as built-in Wi-Fi, a 3-megapixel camera and 8GB of storage. It will also have some software features found in Apple's iPhone, such as gesture-based "multitouch" controls. In fact, comments by an Apple executive in January hinted that the company might sue Palm for stealing features.

Palm sells devices based on Microsoft Windows Mobile, such as the newly introduced Palm Treo Pro, in addition to Palm OS products. But for the operating system that built Palm's business and spawned more than 100,000 applications from 30,000 developers, it has been a slow death. A new, Linux-based Palm OS has been in the works for several years. Applications written for the current Palm OS won't run on the WebOS that succeeds it.

Late Thursday, Palm's shares on the Nasdaq (PALM) were down $0.42 to $7.29 in after-hours trading.

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Stephen Lawson

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