Palm Reports Q4 and FY 2007 Results

Treo Smartphone Sell-through Marks Another Record in Fourth Quarter, Up 43% from Previous Year

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Palm, Inc. (Nasdaq: PALM) today reported that total revenue in its fourth quarter of fiscal year 2007, ended June 1, was $401.3 million. Smartphone sell-through for the quarter reached a company record high, totaling 750,000 units, up 43 percent year over year. Smartphone revenue was $344.2 million, up 14 percent from the year-ago period.

Net income for the quarter was $15.4 million, or $0.15 per diluted share. Net income included stock-based compensation expense of $5.4 million and amortization of intangible assets of $1.0 million. This compares to net income for the fourth quarter of fiscal year 2006 of $27.2 million, or $0.25 per diluted share.

Net income in the fourth fiscal quarter, measured on a non-GAAP(1) basis, totaled $17.8 million, or $0.17 per diluted share, excluding stock-based compensation expense, amortization of intangible assets and the related income tax provision. This compares to non-GAAP net income in the fourth quarter of fiscal year 2006 of $30.6 million, or $0.29 per diluted share, which excluded the effects of amortization of intangible assets and deferred stock-based compensation, legal settlements, restructuring charges, the related income tax provision and the partial reversal of a valuation allowance against deferred tax assets.

“Our record Treo sell-through reflects strong fundamentals in the core focus areas of our business,” said Ed Colligan, Palm president and chief executive officer. “In fiscal year 2007, we expanded our international presence, improved our product pipeline and developed strategic platform technologies. I’m confident that in fiscal year 2008 more and more standard handset customers will demand the capabilities and ease of use of Palm smartphones, which aligns us well for future growth and profitability.”

Fiscal Year 2007 Results

Revenue for the full fiscal year 2007 was $1.56 billion, down 1 percent from the $1.58 billion reported in fiscal year 2006. Smartphone sell-through for the full year reached a company record high totaling 2.7 million units, up 34 percent year over year. Smartphone revenue was $1.25 billion, up 15 percent from the prior year.

Net income for fiscal year 2007 was $56.4 million, or $0.54 per diluted share. Net income included stock-based compensation expense of $24.3 million, amortization of intangible assets of $2.0 million and in-process research and development of $3.7 million. This compares to net income in fiscal year 2006 of $336.2 million, or $3.19 per diluted share, which included a benefit of $219.5 million as a result of the partial reversal of a valuation allowance against deferred tax assets.


Net income for the year, on a non-GAAP basis, totaled $73.4 million, or $0.70 per diluted share, excluding stock-based compensation expense, amortization of intangible assets, in-process research and development and the related income tax provision. This compares with a fiscal year 2006 non-GAAP net income of $88.5 million, or $0.85 per diluted share, excluding the effects of amortization of intangible assets and deferred stock-based compensation, legal settlements, restructuring charges, the related income tax provision and the partial reversal of a valuation allowance against deferred tax assets.

Q1 Fiscal Year 2008 Guidance (2)

- Revenue is expected to be between $355 million and $365 million;
- Gross margin is expected to be in the range of 36.8 percent and 37.3 percent on a GAAP basis and between 37.0 percent and 37.5 percent on a non-GAAP basis;

- Operating expenses on a GAAP basis are expected to be in the range of $137.5 million to $141.5 million and on a non-GAAP basis, between $125 million and $128 million;

- Annual tax rate of 40 percent is expected on a GAAP and non-GAAP basis;
- Earnings per diluted share are expected to be in the range of ($0.01) to $0.01 on a GAAP basis and $0.07 to $0.09 on a non-GAAP basis; and

- SFAS 123(R) stock-based compensation expense, before taxes, is expected to be between $5.5 million and $6.0 million and amortization of intangible assets to be $1 million. We also expect an $8.0 million to $9.0 million restructuring charge to earnings for the recently implemented organizational changes, which will include severance and facility closure costs. Of this we expect $6.5 million to $7.5 million will be incurred in Q1 with the remainder in Q2. These amounts and the related tax amounts are excluded from Palm’s first quarter of fiscal year 2008 outlook on a non-GAAP basis.

INVESTOR’S NOTE: The company will hold a conference call today at 1:30 p.m. Pacific/4:30 p.m. Eastern to discuss matters covered in this news release. The dial-in number is 866.825.3308 (domestic) and 617.213.8062 (international). There is no passcode required for the call.

A telephone replay of the conference call will be available through July 12, 2007. The dial-in number for the replay will be 888.286.8010 (domestic) and 617.801.6888 (international), passcode 98750572. An archive of the audio and visual portion of the conference call will be posted on Palm’s Investor Relations website at http://investor.palm.com.

An audio replay and text transcript of the conference call also can be accessed at the same URL beginning today at approximately 5 p.m. Pacific.
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