Thursday, December 19, 2002
Palm Turns Profit In 2nd Quarter on Declining Sales and Volumes
Posted by Ed Hansberry in "THE COMPETITION" @ 07:00 AM
Palm's 2nd quarter ended November 29, 2002 and they trounced earnings estimates. Analysts were expecting them to lose 15 cents a share, or roughly $4.3M. They instead made 12 cents a share, or $3.5M. Net sales dropped 9% from the same quarter last year from $291M to $265M. This quarter they sold 1.4M devices compared to 1.51M units last year. It is obvious they have cut a ton of fat and/or unnecessary costs as Palm positions itself to sell in the mid $200M range instead of the $522M range at its peak from November 2000.
Interesting items in the numbers:
• Gross margin percentages went from 35.7% in Q2 2002 (last year) vs 32.8% in Q2 2003, however last year had an inventory adjustment of <$43M> that artificially increased gross margins. Take that out and they did 20.1% last year, so increasing it to 33% this year is a marked improvement.
• Sales and marketing expenses dropped from $61M to $45M.
• Research and Development dropped from $37M to $27M.
• Operating income was $389,000 this year. They got to $3.5M of income with the interest their cash account.
• Cash flows from operations was <$10M>, much of that due to a $70M increase in Accounts Receivable, partially offset by an increase in Accounts Payable of $43M. Trust me, this isn't a bad thing having this decrease. If you want more details, ask in the thread and I'll go into the gore of a Cash Flows Statement. They sold $20M in preferred stock though which made their cash position grow $10M from the last quarter. Get it while you can. At some point they will have to make money on their own.
• Their PalmSource division is sort of sliding sideways, even with the OS5 launch. Revenues were $15.1M in Q2 2002 and are $14.8M in Q2 2003. They lost $8.7M last year and $7.6M this year - a decent improvement on virtually flat sales.
We probably won't see any good market share numbers until January. Analysts pay more attention to calendar quarters, not fiscal quarters a company uses. Will Palm gain share this quarter? Their sales and volumes are off from last year. The question is, will the overall handheld market show a decline and will Palm decline faster or slower than the overall market?
Interesting items in the numbers:
• Gross margin percentages went from 35.7% in Q2 2002 (last year) vs 32.8% in Q2 2003, however last year had an inventory adjustment of <$43M> that artificially increased gross margins. Take that out and they did 20.1% last year, so increasing it to 33% this year is a marked improvement.
• Sales and marketing expenses dropped from $61M to $45M.
• Research and Development dropped from $37M to $27M.
• Operating income was $389,000 this year. They got to $3.5M of income with the interest their cash account.
• Cash flows from operations was <$10M>, much of that due to a $70M increase in Accounts Receivable, partially offset by an increase in Accounts Payable of $43M. Trust me, this isn't a bad thing having this decrease. If you want more details, ask in the thread and I'll go into the gore of a Cash Flows Statement. They sold $20M in preferred stock though which made their cash position grow $10M from the last quarter. Get it while you can. At some point they will have to make money on their own.
• Their PalmSource division is sort of sliding sideways, even with the OS5 launch. Revenues were $15.1M in Q2 2002 and are $14.8M in Q2 2003. They lost $8.7M last year and $7.6M this year - a decent improvement on virtually flat sales.
We probably won't see any good market share numbers until January. Analysts pay more attention to calendar quarters, not fiscal quarters a company uses. Will Palm gain share this quarter? Their sales and volumes are off from last year. The question is, will the overall handheld market show a decline and will Palm decline faster or slower than the overall market?
