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Operational Improvements Achieved on Multiple Fronts
SYDNEY, Sept. 21, 2001 -- Palm, Inc. (Nasdaq: PALM) today reported revenues of $214.3 million for the first quarter of fiscal year 2002, ended Aug. 31, down 47 percent from the $401.0 million reported during the same quarter a year ago but up 30 percent from the $165.3 million reported in the fourth quarter of fiscal year 2001.
"While there is much yet to do, we made significant progress on key operational goals in the quarter despite continuing worldwide economic uncertainty and growing competition," said Carl Yankowski, Palm's chief executive officer. "We delivered revenue and gross margin within our target range and reduced our pro forma operating expenses by almost one quarter to match economic realities. We aggressively marketed our products, reducing channel inventories, and we recruited several senior executives in our solutions and platform organizations to build on Palm's leadership and exploit the promising long-term market for handheld computing.
"The Palm brand, customer satisfaction and loyalty continue to be robust," he said. "Our device and OS leadership remained strong over the quarter in the face of significantly increased competition."
(1) Pro forma net loss -- which excludes the effects of excess inventory and related costs/benefit (included in cost of revenues), amortization of goodwill and intangible assets, purchased in-process technology, separation costs, and restructuring charges -- totaled $38.7 million, or $0.07 per share, compared with pro forma net income of $23.9 million, or $0.04 per share, for the first quarter of fiscal year 2001. Pro forma net loss was 57 percent less than the pro forma net loss of $89.2 million, or $0.16 per share, reported in the fourth quarter of fiscal year 2001. Actual net loss for the first quarter of fiscal year 2002 was $32.4 million, or $0.06 per share, compared with net income of $17.3 million, or $0.03 per share, for the first quarter of fiscal year 2001.
Solutions Group Progress and Momentum
During the quarter, the group responsible for Palm(TM) branded handhelds, accessories and add-on hardware and software saw good progress and momentum on a number of fronts.
"We completed the global rollout of our new m500 family of handhelds and today introduced the m125 handheld, giving us the broadest and best price/value portfolio of handheld solutions in our company's history and, indeed, in the industry," Yankowski said. "Mobile individual professionals and enterprises find our new m500 family of products very attractive. This family features internal expansion through standards-based Secure Digital and MultiMediaCard media and external expansion with its Palm Universal Connector. It is gaining excellent momentum on corporate standards lists, and expansion cards are selling well. The m125 handheld also takes advantage of dual expansion, and we expect it will be appealing to first-time buyers, educators, students and customers who want to upgrade from earlier models."
The Palm m125 handheld lets people carry and share office-productivity and education software, eBooks, photos, short videos, extensive reference materials and extra memory. Customers also can attach add-on modules, such as collapsible keyboards, digital cameras and modems. It has an estimated U.S. street price of $249 and includes bundled software valued at more than $100.
"We also are encouraged by exciting new hardware and software from the Palm Economy that expands the capabilities of our products," Yankowski said.
For example, Xircom, an Intel subsidiary, is selling an 802.11b sled for wireless email access, wireless networking in enterprises and other enterprise application access. And Palm m500 series handhelds, which already could edit Microsoft Word files and Microsoft Excel spreadsheets using DataViz's valuable "in-the-box" Documents To Go(R) software, got an added advantage. The new version -- Documents To Go 4.0, which is being incorporated in the box for m500 series handhelds and also is available for download to existing m500 series handheld owners -- allows customers to display Microsoft PowerPoint presentations on their Palm handhelds, an industry first.
During the quarter, Palm shipped approximately 750,000 Palm branded devices, which brings cumulative shipments to more than 14 million.
Platform Momentum
Palm made five strategic announcements related to the Platform Solutions Group during the quarter. They are as follows:
• Announced that the Platform Solutions Group will be established by year-end as an internal subsidiary of Palm;
• Recruited David C. Nagel as chief executive officer of the group. He joined Palm this month from AT&T where he was chief technology officer as well as president of AT&T Labs;
• Launched the Palm OS(R) Ready Program, which lets silicon suppliers acquire a development license for the Palm OS platform for ARM-compliant technology. Participants include Intel, Motorola and Texas Instruments;
• Signed on a new licensee, AlphaSmart, which serves the education market; and
• Initiated steps to acquire the technology assets of Be Inc. and to hire its acclaimed team of software engineers.
In addition to these five moves, the company also has more than 170,000 registered Palm OS developers who have created more than 11,000 commercially available software applications and introduced more than 100 hardware add-ons. According to IDC's study in the United States, Palm Powered(TM) handhelds accounted for 77 percent of all personal digital assistants sold during the first half of 2001. Palm Powered smartphones are expected to account for nearly 60 percent of all smartphones sold by year end 2001.(1)
Palm's OS licensees also have enjoyed growth, creating an innovative and diverse range of Palm Powered solutions that address the entire spectrum of customer needs.
"Ours is the only operating system that spans the full range of mobile information devices, from entry-level mainstream handhelds to high-end multimedia/entertainment to smartphones," Nagel said. "This distinction makes excellent competitive sense and delivers a wealth of choices. Our single platform allows a customer or an IT manager to use the same software across all Palm Powered devices. For enterprise deployment, that means lower TCO [total cost of ownership] because training and support are easier, cheaper and faster. Applications, too, can be developed faster and more cost-effectively vs. the competition, which offers either narrow or splintered platforms.
"We believe the time and money savings in training, ease of use and application development are increasingly powerful incentives to choose the Palm OS," Nagel said. "We are moving aggressively to an ARM-based operating system that will be backward-compatible with existing applications. And we are preparing our OS to handle the demands of advanced multimedia and communications."
Summary
Palm remains very optimistic about how the market for Palm branded and Palm Powered handhelds can develop over time for consumers, mobile individual professionals, business, education and government.
"Current economic uncertainties aside, we know our solutions can access and hold important information, improve personal and professional productivity, enhance service to customers, satisfy IT managers overseeing enterprise systems, and keep people connected as well as entertained," Yankowski said. "Our focus during the just-ended quarter was on improving operational efficiencies, and the same goal will remain foremost in the current and future quarters. We intend to deliver shareholder value over time and believe we have the focus on innovation, the products, the talent and the hearty support from partners and customers necessary to be successful in this early but promising marketplace."
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the federal securities laws, including statements regarding the economy, competition, Palm's device and OS leadership, Palm's brand, customer satisfaction and loyalty, Palm's intentions and expectations regarding its current and future products and services, Palm's expectations regarding its Platform Solutions Group, Palm's intentions to acquire certain assets of Be Incorporated and to hire certain engineers, Palm's intentions and expectations regarding the Palm OS, Palm's expectations regarding the markets for its products and services, Palm's goal to improve operational efficiencies, Palm's intentions and expectations regarding delivering shareholder value and its success in the marketplace. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially, including possible fluctuations in the demand for Palm's products and services, possible fluctuations in economic conditions affecting the markets for Palm's products and services, the ability to develop and consumer acceptance of new products and services, Palm's ability to compete with existing and new competitors and possible future price-cutting or other actions by Palm's competitors. A detailed discussion of other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Palm's most recent filings with the Securities and Exchange Commission, including Palm's annual report on Form 10-K for the fiscal year ended June 1, 2001 and Palm's Registration Statement on Form S-4 filed on Sept. 10, 2001. Palm undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.
INVESTOR'S NOTE: Investors can listen to a live webcast of Palm's Q1 2002 financial results conference call today at 2 p.m. PDT by logging onto the investor relations section of Palm's website at http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=PALM&script=2400. A digital replay of the conference call will be available for two weeks beginning today at approximately 6 p.m. PDT. The dial-in number for the replay is 877-519-4471 in North America; 973-341-3080 for international callers. The passcode for both is 2828713.
(1) Reflecting on the first half of calendar 2001, IDC estimated this month that the Palm OS share of the personal companion market in the United States is 77 percent. On a worldwide basis, IDC said the Palm OS share was 69 percent. For smartphones, which IDC calls converged mobile phones, the Palm OS is expected to account for 58 percent of the market in the United States and 19 percent worldwide by year end 2001.
NOTE: Palm OS is a registered trademark and Palm and Palm Powered are trademarks of Palm, Inc. Other brands may be trademarks of their respective owners.
Palm, Inc.
Pro Forma Condensed Consolidated Statements of Operations
Excluding excess inventory and related costs/benefit (included in cost of
revenues), amortization of goodwill and intangible assets, purchased
in-process technology, separation costs and restructuring charges
(In thousands, except per share data)
(Unaudited)
Three Months Ended
August 31, September 1,
2001 2000
Revenues $214,317 $400,976
Costs and operating expenses:
Cost of revenues 155,360 247,513
Sales and marketing 65,547 76,001
Research and development 41,206 30,320
General and administrative 12,143 20,491
Pro forma costs and
operating expenses 274,256 374,325
Pro forma operating income (loss) (59,939) 26,651
Interest and other income, net 2,994 13,244
Pro forma income (loss)
before income taxes (56,945) 39,895
Pro forma income tax
provision (benefit) (18,222) 15,958
Pro forma net income (loss) $(38,723) $23,937
Pro forma net income
(loss) per share:
Basic $(0.07) $0.04
Diluted $(0.07) $0.04
Shares used in computing
per share amounts:
Basic 567,215 565,149
Diluted 567,215 568,095
The above pro forma amounts for the three months ended August 31, 2001
have been adjusted to eliminate excess inventory and related costs/benefit
(included in cost of revenues), amortization of goodwill and intangible
assets, separation costs, and restructuring charges. The above pro forma
amounts for the three months ended September 1, 2000 have been adjusted to
eliminate amortization of goodwill and intangible assets, purchased in-process
technology and separation costs.
A reconciliation of pro forma net income (loss) presented above with
Palm's net income (loss) as determined in conformity with generally accepted
accounting principles is presented on the following page.
Palm, Inc.
Reconciliation of Pro Forma Income (Loss) to Reported Results
(In thousands)
(Unaudited)
Three Months Ended
August, 31 September 1,
2001 2000
Pro forma net income (loss) $(38,723) $23,937
Excess inventory and related
costs/benefit (included in
cost of revenues) (14,300) --
Amortization of goodwill
and intangible assets 2,910 5,235
Purchased in-process technology -- 853
Separation costs 376 1,815
Restructuring charges 1,761 --
Related income tax
provision (benefit) 2,961 (1,241)
Net income (loss) $(32,431) $17,275
For the three months ended September 1, 2000, pro forma cost of revenues
includes $687 thousand, which is reclassified in Palm's Condensed Consolidated
Statement of Operations from cost of revenues to amortization of goodwill and
intangible assets.
Palm, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three Months Ended
August 31, September 1,
2001 2000
Revenues $214,317 $400,976
Costs and operating expenses:
Cost of revenues 141,060 246,826
Sales and marketing 65,547 76,001
Research and development 41,206 30,320
General and administrative 12,143 20,491
Amortization of goodwill
and intangible assets (*) 2,910 5,922
Purchased in-process technology -- 853
Separation costs 376 1,815
Restructuring charges 1,761 --
Total costs and operating expenses 265,003 382,228
Operating income (loss) (50,686) 18,748
Interest and other income, net 2,994 13,244
Income (loss) before income taxes (47,692) 31,992
Income tax provision (benefit) (15,261) 14,717
Net income (loss) $(32,431) $17,275
Net income (loss) per share:
Basic $(0.06) $0.03
Diluted $(0.06) $0.03
Shares used in computing
per share amounts:
Basic 567,215 565,149
Diluted 567,215 568,095
(*) Amortization of goodwill
and intangible assets:
Cost of revenues $1,379 $687
Sales and marketing 11 160
Research and development 1,520 5,075
General and administrative -- --
Total amortization of goodwill
and intangible assets $2,910 $5,922
Palm, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
August 31, June 1,
2001 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $321,233 $513,769
Accounts receivable, net of
allowance for doubtful
accounts of $10,708 and
$14,899, respectively 48,724 115,342
Inventories 115,409 107,813
Deferred income taxes 132,349 154,362
Prepaids and other 12,729 12,867
Total current assets 630,444 904,153
Property and equipment, net 230,803 223,422
Goodwill, net 44,400 43,169
Intangible assets, net 14,688 19,090
Other assets 16,408 16,761
Deferred income taxes 131,361 90,656
Total assets $1,068,104 $1,297,251
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $110,542 $238,235
Accrued restructuring 26,044 32,399
Other accrued liabilities 218,007 282,851
Total current liabilities 354,593 553,485
Non-current liabilities:
Deferred revenue and other 10,307 9,614
Stockholders' equity:
Preferred stock, $.001 par value,
125,000 shares authorized; none
outstanding -- --
Common stock, $.001 par value,
2,000,000 shares authorized;
outstanding August 31,2001,
567,245 shares; June 1, 2001,
567,215 shares 567 567
Additional paid-in capital 1,091,595 1,092,329
Unamortized deferred stock-based
compensation (12,742) (14,929)
Accumulated deficit (376,470) (344,039)
Accumulated other comprehensive
income (loss) 254 224
Total stockholders' equity 703,204 734,152
Total liabilities and
stockholders' equity $1,068,104 $1,297,251
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SOURCE Palm, Inc.
About Palm, Inc.
Palm, Inc. is a pioneer in the field of mobile and wireless
Internet solutions and a leading provider of handheld computers,
according to IDC (December 2000). Based on the Palm OS®
platform, Palm's handheld solutions allow people to carry
and access their most critical information with them wherever
they go. Palm(TM) handhelds address the needs of individuals,
enterprises and educational institutions through thousands
of application solutions.
The Palm OS platform is also the foundation for products from Palm's licensees and strategic partners, such as Franklin Covey, HandEra (formerly TRG), Handspring, IBM, Kyocera, Sony, and Symbol Technologies. Platform licensees also include Acer, Garmin, Nokia and Samsung. The Palm Economy is a growing global community of industry-leading licensees, world-class OEM customers, and more than 160,000 innovative developers and solution providers that have registered to develop solutions based on the Palm OS platform. Palm went public on March 2, 2000. Its stock is traded on the Nasdaq national market under the symbol PALM. More information is available at www.palm.com
Palm OS is a registered trademark, and Palm is a trademark of Palm, Inc. or its subsidiaries.
