Palm OS developer PalmSource slid into the red during its third fiscal quarter after a fall in device shipments hit its royalty revenues. The company's licensees shipped 30 per cent fewer Palm OS-based handhelds than they did in the year-ago quarter.

During the three months to 25 February 2005, PalmSource notched up revenues of $17.2m. That figure includes not only revenue from the company's on-going business, but also a month's contribution from recent acquisition China MobileSoft. Q3 FY2004 saw revenues of $21.6m; Q2 FY2005, $19.2m, making for year-on-year and quarter-on-quarter declines of 20.4 per cent and 10.4 per cent, respectively.

The slide arises from declining demand for PDAs. While Palm OS-based smart-phone shipments jumped 34.2 per cent between Q3 FY2004 and Q3 FY2005, from 240,000 units to 322,000, PDA shipments were down 38.8 per cent, from 1.76 million units to 1.08 million. Overall, PalmSource licensees shipped 2 million devices during the company's Q3 FY2004, but only 1.4 million during Q3 FY2005, a 30 per cent decline.

Gross margin for the quarter was 93 per cent.

PalmSource's GAAP net loss for the most recently completed quarter totalled $700,000 (five cents a share), down on the year-ago quarter's GAAP income of $600,000 (five cents a share). Ignoring one-off charges, Q3 FY2005's non-GAAP loss came to $600,000 (four cents a share), down from $3.6m (32 cents a share) a year ago.

Looking ahead to Q4, PalmSource said its expects revenue growth to be flat to four per cent, with revenue falling between $17.2m and $18m. The company expects losses in the range 13-18 cents a share. ®

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