Palm Inc gave itself a corporate pat on the back yesterday as it clawed its way back into profit in its second quarter and turned in sales well ahead of forecasts.

However, the firm tempered its good news by predicting it would still make an operating loss in the third quarter and hinting at further job cuts.

The Milpitas, California-based handheld developer turned in sales of $264.9m for the quarter ending November 29, down 8.8% on the year, but better than the $251.5m Wall Street had been expecting. Operating profits were $389,000 compared to the $37.5m operating loss it made last year. However, interest and other income helped boost its net profit to $3.5m compared to a $25.2m loss last year. Once costs were stripped out the company made proforma income of $0.19 per share. Wall Street had been expecting a loss of $0.15 per share.

Palm staged a major product launch in the second quarter, debuting its Tungsten and Zire product lines. However, chairman Eric Benhamou said the biggest factor in its performance was "improved execution."

The firm expects both its Solutions business and its Palmsource business to be profitable over the course of the full year.

CFO Judy Bruner said sales had been boosted by the launch of the new products and the effect of seasonality. She said the company was continuing to examine its operations, and expected to take a restructuring charge in the second half. She added that it expected to turn in a modest proforma operating loss in the third quarter. The company also expects a small loss under GAAP.

Asked if the expected further restructuring would include job losses, Bruner said the firm was always examining its staffing levels to make sure the different parts of the business are optimized.

For the year to date, sales were down 13.4% to $437.2m. Palm's net loss so far stands at $255.2m, compared to a loss of $57.6m last year.

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