Palm: 823,000 Smartphones Shipped, But Outlook Not Clear

| About: Palm, Inc. (PALM)

Palm’s (PALM) first quarter had multiple moving parts. The company shipped 823,000 smartphones, announced plans to raise capital, beat estimates, delivered a mixed outlook and said the company’s fortunes will be tied to product launches.

Got all that?

The big question, however, remains. Can the Palm Pre smartphone turn things around for the troubled company? Investors, looking beyond Thursday’s earnings release, are certainly hoping so.

In its release of first quarter results, the company noted that it shipped 823,000 smartphone units during the quarter, a 134 percent increase over last quarter but a year-over-year decrease of 30 percent. Smartphone sell-through for the quarter was 810,000 units, up 76 percent from the most recent quarter but down 21 percent year-over-year. (Statement)

In addition, Palm said it will offer 16 million shares to raise more cash. Elevation Partners will buy $35 million worth of Palm shares at the offering price.

For its first quarter, Palm reported a Non-GAAP net loss of $13.6 million, or 10 cents per share, on revenue of $360.7 million. Wall Street analysts had been expecting a loss of 24 cents on $306.5 million in revenue.

But the numbers aren’t so black-and-white (see Palm’s 5-page PDF on the non-GAAP reconciliation). Palm’s financials were muddled with the GAAP comparisons as the company moves to subscription accounting related to the Pre. On a GAAP basis, the company reported a loss of $2.8 million on revenue of $68 million. Palm explains its accounting methodology like this:

These results include the effects of subscription accounting applied to Palm webOS products as required by GAAP. In accordance with this methodology, revenues and direct cost of revenues for Palm webOS products (currently Palm Pre smartphone) are deferred and recognized over the product’s estimated economic life.

On a conference call with analysts, company chairman and CEO Jon Rubenstein played up launch of the WebOS mobile operating system and the launch of the Pre, noting that the company can now shift from rollout of the OS and focus on expanding it to additional devices and more carriers. Rubenstein called it a “landmark quarter” and said that the launch of Pre and WebOS showcased Palm’s vision and potential.

Moving forward, the company will focus all efforts on the new operating system and the rollout of new devices among multiple carriers and pointed to the second half of fiscal year 2010 for news on that front. In addition, executives also have their sights set on the enterprise market, noting that enhancement for compatibility with Microsoft Exchange positions them to compete on that front.

The company also announced a new marketing strategy, noting that it’s split efforts into two - one focused on promoting devices, with another emphasizing brand.

Still, Palm’s outlook also was lumpy. The company projected non-GAAP revenue for the second quarter of $240 million to $270 million. Wall Street was looking for $346 million. For the year, Palm projected non-GAAP revenue of $1.6 billion to $1.8 billion. Wall Street was projecting $1.57 billion.

In other words, Palm is expecting a strong year with lumpy quarters due “the timing and scale of expected product launches in Palm’s second fiscal quarter compared to those which took place in Palm’s first fiscal quarter, and due to lower anticipated demand for legacy products.”

Add it up and the reaction to Palm’s quarter was predictable—folks weren’t sure what to make of it.