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PalmSource in the black as Palm Q3 slides

Lining up licensees

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Update The seasonal hardware sales dip and the weak IT economy pulled Palm's Q3 2003 figures, announced yesterday, well below the results it posted for the same period last year.

There was one positive sign, however: its PalmSource subsidiary recorded its first profitable quarter. Its net income was $1.4 million. Operating income was $6.6 million.

The group as a whole realised revenues of $209 million for the three months to 28 February, a fall of 28.6 per cent from the $292.7 million it posted this time last year. Its operational loss was $26.5 million ($0.91 a share, adjusted on the basis of last October's stock split), rather worse than Q3 2002's $14 million ($0.49 a share). Factor in various exceptional charges and Palm lost $172.3 million. That includes $140 million in restructuring and property charges Palm had already announced.

Palm also said it managed to cut inventory from $50.6 million in Q3 2002 to $23.3 million and operating expenses from $105.2 million to $86.5 million. Gross margins rose year-on-year to 31.3 per cent from 29.2 per cent. However, none of these figures have been audited according to GAAP.

Palm doesn't explicitly break down figures for its two subsidiaries, the hardware-focused Palm Solutions Group and the OS-developing PalmSource, but it did say the latter had had a profitable quarter and contributed revenues of $26.3 million, its best yet.

Having signed three new PalmOS licensees, Legend, Group Sense and HuneTec, all targeting Far Eastern markets, that's perhaps not surprising. It also signed Portable Innovation Technology (PiTech) as a Palm OS licensing sub-licensor, allowing it to focus its efforts on big-name (and big paying) licensees.

Traditionally, Q3 is PalmSource's best-performing quarter because it realises revenue from licensees' Christmas sales during the quarter. Revenue from licensees other than Palm Solutions Group was up 40 per cent.

That profitability may attract the attention of other potential buyers, not just Sony. Its CEO Nobuyuki Idei said he would like to buy PalmSource - if only Palm would sell. We suspect it's keener on offloading the Solutions Group. Despite shipping two very well-designed PDAs, the Zire and the Tungsten-T, the latter has proved too pricey for many buyers in the current economic climate, while the wireless-enabled Tungsten-W is disappointingly underpowered, with almost nothing in common with the T other than its branding. ®

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