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Executives

John Shanburg - Investor Relations

Edward T. Colligan - President, Chief Executive Officer, Director

Andrew J. Brown - Chief Financial Officer, Senior Vice President

Analysts

Vivek Arya - Merrill Lynch

Paul Coster - J.P. Morgan

Jim Suva - Citigroup

Maynard Um - UBS

Jonathan Goldberg - Deutsche Bank

Tavis McCourt - Morgan Keegan

James Faucette - Pacific Crest Securities

Michael Walkley - Piper Jaffray

Palm, Inc. (PALM) F4Q08 Earnings Call June 26, 2008 4:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Palm Inc. fourth quarter and fiscal year 2008 financial results conference call. (Operator Instructions) I will now turn the call over to Mr. John [Shanburg]. Please proceed.

John Shanburg

Thank you. Good afternoon, everyone. I would like to welcome you to Palm's fourth quarter and fiscal year 2008 financial results conference call. On the call today are Ed Colligan, CEO and President; and Andy Brown, Chief Financial Officer. Today’s call is being recorded and will be available for replay on our investor relations website at www.palm.com.

I would like to remind everyone that today’s comments, including the question-and-answer session, will include forward-looking statements, including but not limited to guidance on future financial and business activity. These statements are subject to risks and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in Palm's filings with the Securities and Exchange Commission, including its quarterly report on Form 10-Q for the fiscal quarter ended February 29, 2009.

Palm undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after this call.

Please note that today’s results will be reported on a non-GAAP basis except where specifically noted in the commentary as GAAP results or estimates. Non-GAAP reporting is provided to help you better understand our business. However, non-GAAP financial results are not meant to be considered in isolation or as a substitute for or superior to GAAP results. You should be aware that non-GAAP measures have inherent limitations and should be used only in conjunction with Palm's consolidated financial statements prepared in accordance with GAAP.

Our press release includes a table detailing the non-GAAP measures together with the corresponding GAAP numbers and a reconciliation to GAAP. You can also find this information posted on our investor relations website. The slides that accompany this call include both GAAP and non-GAAP measures and are also available on our investor relations website. We encourage listeners to review these items.

And now I would like to turn the call over to Ed Colligan. Ed.

Edward T. Colligan

Thank you, John and good afternoon, everyone. Today I will report on our recently completed quarter and each of the three major components in our continuing transformation as a company -- people, products, and platforms.

As we told you on our last call, we have some work ahead of us before we return to profitability, and though we’ve come through a difficult quarter, I have never felt more enthusiastic about our product pipeline and our ability to get back on the right track.

Strong sales of Centro this quarter produced record sell-through of 968,000 smartphones. However, lower sales of Windows Mobile based Treos and continuing declines in our handheld products resulted in reduced Q4 revenue of $296 million. The strong Centro sell-through results were achieved while ramping up AT&T and without Verizon, which was recently announced as our newest carrier partner for Centro. We also continue to introduce Centro with carriers in global markets such as Rogers in Canada.

I believe Centro will continue to perform well through the holidays as we work with our carrier partners on marketing programs focused on driving its momentum.

Centro’s success has led to some significant market share gains as we continue to attract new customers to the smartphone market. IDC reported our market share in the United States nearly doubled quarter over quarter, as almost a million new people bought Centros. According to our own studies, more than 70% of Centro buyers are traditional cell phone users who are buying a smartphone for the first time.

These customers will love the new Facebook application that we recently added to the Verizon Centro. It is the most integrated native Facebook application on the market. There is no easier way to post status updates, upload mobile photos and videos, and contact friends right from your Facebook contacts page.

Eight months into our transformation, I am very happy to say we’ve made significant progress on each of our major focus areas -- people, products, and platforms.

On the people front, we continue to retool our development team and add some amazing new talent, including Mike Abbott and [Wei Ting], two very talented software development leaders who bring fantastic experience to help us build a world-class next generation platform. Mike was a key architect of Microsoft’s .NET efforts and will help us drive our integration between network services and on-device applications for a more compelling and integrated web experience. Wei spent several years developing Silicon Graphic’s core OS layers and brings accomplished leadership and technical capabilities to ensure that our core OS elements are world-class and delivered on time.

I am very excited to have both these leaders on our team and we have added a whole host of other talented people, as we build what we believe is the world’s best smartphone roadmap.

On the products front, as I mentioned earlier, in addition to our great success with the Centro at Sprint and AT&T, we recently shipped the product to Verizon and early sell-through data with Verizon is very encouraging. We also continue to deliver Centro globally, with launches in Australia, Spain, the U.K., and Mexico over the last quarter, just to name a few.

We expect to refresh our Windows Mobile product line soon, and to continue to expand our product offerings into the fall timeframe. These new products will deliver major advancements in all areas of smartphone technology, including high performance 3G radios, integrated WiFi, integrated point of interest capabilities based on GPS technology, fantastic design and out-of-box experience based on the latest platform technology from Microsoft and enhanced by Palm’s famous ease of use.

We strongly believe that our combined Palm and Microsoft solution is the best all-around offering for any enterprise customer.

On the platform front, we expect to renew our design and innovation leadership position with our new system software. We are extremely confident that the enhanced functionality of this new platform and its accessibility to the developer community, combined with the game-changing hardware we have designed for it will usher in a new era for Palm. This platform development effort is proceeding very well and we look forward to bringing these products to market.

With the combination of Centro growth and the delivery of Windows Mobile products, we do expect to deliver revenue growth in this quarter, but we will likely remain unprofitable as we continue to invest in core development and marketing programs for our transformation. Having said that, we enter fiscal year ’09 a much stronger Palm, much better positioned to compete and to increase market share and on a solid path to profitability.

In summary, we are more confident than ever in our transformational efforts. We’ve added extraordinary new talent. The Centro is a smash success. We have an incredibly competitive product pipeline and are developing a world-class software platform. I expect together, these efforts will deliver positive results in the coming years.

Before I take your questions, I will turn the call over to Andy to provide you with more financial details. Andy.

Andrew J. Brown

Thanks, Ed and good afternoon, everyone. Before I start, I would like to reiterate that all the commentary today is based on non-GAAP financial measures except where specifically identified as GAAP. I encourage you to refer to the reconciliation of GAAP to non-GAAP financial results that is posted to the Palm website and included with the press release.

Focusing on the full year’s results, our revenue for fiscal 2008 was $1.32 billion compared with $1.56 billion in fiscal 2007. Fiscal 2008 gross margins decreased to 30.6% from 37% in the year-ago period, largely the result of the success of Centro and the decreased contribution from our higher margin Treo product line. Centro exceeded our expectations for the year and continues to be a strong selling product but it carries a lower gross margin.

Our operating expenses decreased year over year by 3% to $463.9 million as we reduced expenses during the year while continuing to invest in our product delivery engine and demand creation programs. This resulted in a loss per common share of $0.34 compared to an earnings per diluted share of $0.70 in fiscal 2007.

Smartphone revenue was $1.13 billion on unit shipments of 3.2 million. Unit sell-through for smartphones grew 19% year over year to 3.2 million units, while overall channel unit inventories remained relatively flat.

Smartphones represented 85% of our overall revenues in 2008 versus 80% in fiscal 2007. The growth in smartphone volumes was more than offset by accelerated declines in the handheld business, where we experienced a 35% year-over-year decline in units and a 38% decline in net revenues.

Looking at Q4 in more detail, revenue came in at $296.2 million, declining both year-over-year and sequentially. While we achieved record smartphone unit shipments and sell-through, the lower revenue performance was mainly attributable to slowing sales of our older Windows Mobile Treo products and continued decline in handheld revenue at 46% year over year.

We anticipate a larger revenue contribution from our Windows Mobile Treos as we introduce new models over the next couple of quarters.

Gross margin for the quarter was 25.3%, down sequentially and from the year-ago period. The decrease from the year-ago period is primarily the result of strong demand for Centros, which carry relatively lower gross margins and the previously mentioned decline in sales of older Windows Mobile Treo products, which typically carry higher gross margins.

In addition, we incurred higher freight costs as a result of higher expedite charges and we accrued inventory related reserves for some older products.

We anticipate gross margins to gradually increase during fiscal 2009 due to an increased mix of higher margin products and decreased costs for Centros as volumes continue to ramp.

Operating expenses for the quarter were $109.1 million, slightly lower than we had originally expected, as a result of continued expense management and reduced bad debt reserves associated with lower accounts receivables. This resulted in an operating loss of 11.6% of revenue and a loss per common share of $0.22. In addition, the adjusted EBITDA for the quarter was negative $26.4 million.

While we expect our core expenses to be relatively flat to Q4 for the next couple of quarters, we are planning incremental variable marketing investments for product introductions and demand generating programs to drive top line growth.

Smartphone revenue for the fourth quarter was $265.6 million on shipments of 913,000 units. Smartphone ASPs decreased during the quarter to $288 per unit. As expected, we experienced strong demand for the lower ASP Centros during the quarter, combined with decreased sales of the higher ASP Treos.

While we expect to see a larger contribution from our Windows Mobile Treos in the first half of 2009, we also expect the growth of Centro to accelerate now that Verizon is shipping the Centro along with Sprint and AT&T.

During the quarter, we saw record sell-through of 968,000 units, a 29% increase year over year and a 16% increase from the prior quarter, driven by robust sell-through of Centros.

Handheld revenue for the quarter was $30.6 million, reflecting sales of 159,000 units. Handheld sell-through for the quarter was 185,000 units, a 41% decline year over year.

Inventory held by our channel partners was 7.4 weeks at the end of the quarter.

In Q4 fiscal 2008, we generated 83% of our revenues from the U.S. and 17% internationally, basically unchanged from Q3.

Looking at the balance sheet, our cash and short-term investments decreased $13.2 million from the prior quarter to $258.7 million. Cash flow used by operations for the quarter was $12.1 million, much of this attributable to the operating loss and increased inventories, offset by decreased accounts receivable.

Inventories increased to $67.5 million while inventory turns decreased to 16 times. The increase was primarily a result of inventory in transit for the launch of Centro at Verizon on June 12th.

Accounts receivable decreased to $116.4 million and DSOs were 35 days, which is the result of shipments in the quarter being more linear in nature.

I will now turn the call over to the Operator for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Vivek Arya of Merrill Lynch. Please proceed.

Vivek Arya - Merrill Lynch

Thank you. Andy, my question really is what is the next step in the strategy here? Obviously the Centro is doing well but gross margins are extremely low, much lower than I’d anticipated. And I’m wondering, what is the strategy until the new system software is released and until you get to the next generation products -- the new Windows Mobile Treos that you are talking about, how much improvement in gross margins can actually result from that? So any thinking along gross margins would be very helpful.

Edward T. Colligan

I think we are very pleased with Centro, obviously and yet we knew that was a lower gross margin product. We need to get the Windows Mobile products into our product line. As I said in my comments, those are coming very soon. We will rebuild that line during this next few months and we expect those to contribute to improved gross margins and improved revenue growth.

You know, the gross margins will improve gradually. We don’t want to predict too much of an up-turn, mostly because we expect to continue to see Centro acceleration in our revenue, so -- but you will see them improving and you will see revenue growth improving going forward.

Vivek Arya - Merrill Lynch

And Ed, what milestones can we use to sort of track your progress on the new system software and the next generation products that you are working on?

Edward T. Colligan

Well, the only milestones that we’ve set out is to finish up the platform towards the end of this year and then deliver products in the first half of ’09 and that’s -- those are the big milestones. I expect, you know, relative to the developer community and so forth, you might start to see some buzz but I can’t predict any of that. Right now, it’s really just heads down, execute as best we can, deliver the platform in a way that is really compelling and get that out as soon as we possibly can. We are obviously anxious to see that come to market.

Vivek Arya - Merrill Lynch

Is it already with the developer community or are you still -- have you like launched beta versions of it already or --

Edward T. Colligan

I’m not going to get into specifics like that, Vivek. I appreciate you asking but we are going to stay away from exact time.

Vivek Arya - Merrill Lynch

Thank you.

Operator

Your next question will be from the line of Paul Coster of J.P. Morgan. Please proceed.

Paul Coster - J.P. Morgan

Thank you. You were quite clear in your language that the W product is coming out in the first half of the fiscal year. Does this mean that you are not sure at the moment whether it’s going to catch this August quarter and may slip into the subsequent quarter?

Edward T. Colligan

No, I didn’t clarify that, I guess. What I am saying is we are doing a product line and we will release products in a couple of different tranches over the next few months, so I think it’s the -- you will hopefully see something reasonably soon and then as we enter the fall, some additional introductions.

Paul Coster - J.P. Morgan

Got it. Thank you. Now, you’ve brought on some excellent resource into the platform program. How do you respond to the argument that it’s late to be bringing resource into a program that’s kind of nearing completion? Am I just misconceiving how it works there?

Edward T. Colligan

Well, I think you are misconceiving that it’s ever done. You know, this is a huge development effort with a long tail to it, you know, platform -- we’ve been using Palm OS for more than 10 years and this is just the start of a whole new wave of not only a new platform with a release but new tools and new services and new technologies that will continue to be brought to bear, so we want to continue to enhance our team over the years to come to make it as best as it can be, to develop the most compelling experience for our customers.

Paul Coster - J.P. Morgan

You’ve brought some of your long-term investments forward into the short-term investment category and obviously -- you’ve done a great job of bringing down accounts receivables, by the way, but you know, you must be watching the cash burn. As you move forward here, how are you [prioritizing] your cash burn, just to reinsure investors here that you kind of -- you know when to pull the plug on growth, if necessary.

Edward T. Colligan

Well, I mean, Paul, we have I believe a strong capital structure and a strong cash balance. We clearly burned about $13 million this quarter, but we are making thoughtful investments too. It’s really important for us to get the next generation Windows Mobile products out and obviously the next generation Palm based products, but also to drive that top line growth. And we are going to be prudent about that. That’s why we have a strong balance sheet but as we said earlier, we would certainly like to as soon as possible return to a positive cash flow but not to a point where we are -- you know, we are being foolish and not getting the products and driving the momentum that we have in the marketplace today.

Paul Coster - J.P. Morgan

Okay, great. Thanks very much.

Operator

Your next question will be from the line of Jim Suva of Citi Investment Research. Please proceed.

Jim Suva - Citigroup

Thank you very much. A quick clarification -- you mentioned you expect gross margins to improve going ahead. I want to make sure we are all on the same page as far as the starting point. Is the starting point of that I believe from the May quarter as opposed to the fiscal year of ’08?

Andrew J. Brown

What I said, Jim, was that gradual improvement throughout the year on gross margins, and our Q1 of fiscal year ’09 started in June.

Jim Suva - Citigroup

Right. Okay, great. And then second, can you just talk a little bit about the increased marketing? You mentioned that when your new products come out, you are going to do some increased marketing -- the timing and/or magnitude about that?

Edward T. Colligan

Well, you know, as we -- we are going to be introducing new products over the next couple of quarters and we also want to continue to support the Centro momentum, so it would be more normal course of business relative to those. I just think as you introduce new products, it requires you to bring them into the marketplace to support your carrier partners and doing so to do the right merchandising efforts at the point of sale and to do some launch, you know, communications about them. But don’t expect anything extraordinary. We’re not -- as Andy said, we’re trying to be very prudent and thoughtful about the level of that marketing but we also don’t think going silent makes a lot of senses when we have so much momentum with Centro right now.

Jim Suva - Citigroup

Great. Any thoughts about new Treo users, or the current Treo refresh users of actually already buying a Centro as opposed to waiting around for the new Treo?

Edward T. Colligan

Oh, lots of people are buying Centros but it’s not just Treo refresh people. I mean, we are really seeing a whole new group of Palm users coming to fore, which is great. I mean, it’s mostly traditional cell phone users is what our data shows, and so we think we are seeing a real shift here in the smartphone market overall and we are getting the benefit of that, having a product that we think is the best value on the market for people who are entering this space.

Jim Suva - Citigroup

Thank you very much, gentlemen.

Operator

Your next question will be from the line of Maynard Um of UBS. Please proceed.

Maynard Um - UBS

Thanks. Just a quick question on the new product launches in the coming quarters -- it sounds like the ASP there should be pretty good, given your commentary on the gradual gross margin increases through the year. Can you just share with us your thoughts on your pricing strategy there relative to kind of years past when the ASPs have been pretty good at about, you know, above the $400 level? Do you think the higher functionality is enough to maintain a premium price point, particularly in light of some of your competitors and a 3G iPhone at $199 and others? Thanks.

Edward T. Colligan

Well, a big part of the pricing on the street is driven by carrier decisions around subsidies and how much they think you are driving increased ARPU or bringing new customers to their network. I think we will be very competitive with any of the high-end products in the marketplace relative to our costs of the product and our sell-in prices to the carriers, and it’s really up to us to work with them to make sure that it’s appropriately positioned in the marketplace relative to end user pricing and that the effective marketing communications happens around it.

You know, we believe that that will be the case, that these products will be successful relative to how we look at the overall market today and the competitive environment. We are excited about the capabilities of our new Windows Mobile products in the sense of the broad range of technology that’s in them, so we think they will compete quite well and they will be appropriately priced.

Maynard Um - UBS

So effectively, you would expect the operators to subsidize it to competitive levels, given kind of the data attach rates? Is that --

Edward T. Colligan

At the end of the day as we work with them, you know, we know that we can be competitive in the marketplace even at higher ASPs, and so that’s why we believe we can not only be successful with the products but we also can have a reasonable growth in our gross margins.

Maynard Um - UBS

Great, and then just lastly on -- just a clarification on the OpEx. You said flat OpEx -- is that overall OpEx? I think you said core OpEx but can you just -- will the overall OpEx be -- is that where you are talking about being flat over the next couple of quarters?

Andrew J. Brown

Maynard, what I said was that the core OpEx that we’ve been trying to drive down over the past couple of quarters we believe will stay relatively constant but we will have incremental marketing programs for a couple of reasons -- one is product introductions. For example, like the Verizon introduction of Centro that we recently introduced, and then potential seasonal marketing programs to drive the top line. And so there will be incremental marketing programs on top of what we -- expenses on top of what we see, now at least that’s what we anticipate today.

Maynard Um - UBS

So meaning in totality, we should expect the total OpEx numbers to be up just because of new product launches?

Andrew J. Brown

Yes, and primarily around demand generating programs, yes.

Maynard Um - UBS

Great. Okay, thanks.

Operator

Your next question will be from the line of Jonathan Goldberg of Deutsche Bank. Please proceed.

Jonathan Goldberg - Deutsche Bank

Thanks for taking my call. First, just a housekeeping question; I’m just trying to figure this out -- if you add in all the marketing dollars that are associated with the Centro, do you actually make money on a per unit basis on the Centro?

Andrew J. Brown

I’d say in general -- when you look at the Centro in general, relative to our expectations for the first I guess three quarters at this point, it has far exceeded our expectations, so we are seeing -- certainly seeing more gross margin dollars from the Centro and when we look at the overall marketing spend that we’d anticipate round this product, it’s pretty much what we had expected. So I would say in general, the contribution margin from the Centro is exceeding our expectations.

Jonathan Goldberg - Deutsche Bank

Okay. And then Ed, a question for you -- is the new platform still on time for 2008?

Edward T. Colligan

The new platform is still on time for what we’ve set as our targets, which is platform 2008, products in early 2009.

Jonathan Goldberg - Deutsche Bank

Okay, so going back to the quarter, you mentioned there’s a slowdown in shipments of Windows OS products, in the latest quarter?

Edward T. Colligan

Windows Mobile Treos, yeah -- you know, those products have been on the market for a couple of years. Yeah, we’ve seen some slowdown in those, yeah.

Jonathan Goldberg - Deutsche Bank

So my question is why was there a delay? Why not have the refresh ready sooner?

Edward T. Colligan

Well, you know, we’re working as hard as we can to get products out the door. We clearly would have liked to have done it sooner and you know, sometimes these just take longer than you had hoped, so you keep working as hard as you can to put them into the marketplace. That’s what we are doing and as we said, we’ll bring them out -- we’ll bring a couple of new products to the market shortly.

Jonathan Goldberg - Deutsche Bank

Because it seems like we’ve been down this road before. I can remember a couple of years back we had [Rohaus], there was delay around that. I think there were initial delays, meaningful delays in the launch of the Centro. So I’m just kind of curious -- is there anything systematic that has been a difficulty in shipping these products on time?

Edward T. Colligan

No, nothing systematic. It’s all technology and product development.

Jonathan Goldberg - Deutsche Bank

Well, that would seem to be your core competency. That’s why I don’t understand why there is a persistent delay. And what I’m really getting at is I want to know once we get into 2008, or once we get to the end of 2008 with the new OS ready and then we have the new products several months later, are those actually getting -- is there potential for those to get pushed out even further?

Edward T. Colligan

Well, you know, technology developments are always complex. We are trying to build the best products we possibly can and that’s what we are focused on. We are focused on delivering great end-user solutions. We’ve obviously, as you know, Jonathan, been working very hard to rebuild the team here and make sure that we’ve got the best talent we can to make sure that any execution issues get mitigated that may have happened in the past. And I think we’ve done that and we’ve really retooled very successfully, and I’m more confident than ever that this team that’s here today from the standpoint of engineering and product delivery is going to do not only outstanding products but deliver them on time in the future.

Jonathan Goldberg - Deutsche Bank

Okay. Thank you.

Operator

Your next question will be from the line of Tavis McCourt of Morgan Keegan. Please proceed.

Tavis McCourt - Morgan Keegan

Thanks. First, a quick housekeeping question -- Andy, did you mention the number of handheld shipments? Not the sell-through, but the shipments in the quarter?

Andrew J. Brown

Yes, I did, Tavis. Let me get that for you -- it was 159,000 units of handheld shipments during the quarter.

Tavis McCourt - Morgan Keegan

And you mentioned one of the things impacting gross margin was an increased inventory of reserve. Can you talk about the absolute dollar amount there?

Andrew J. Brown

I’m not going to get into the details but it was meaningful enough to mention. It did have a small -- it did have an impact on our overall gross margins. That, along with expedited freight as we were -- for some of the newer products.

Tavis McCourt - Morgan Keegan

And then you’ve talked about having supply constraints in the past. Obviously Centro continues to outperform and you mentioned acceleration for the next couple of quarters. Where do you stand in terms of supply issues at this point? Are things still tight? Are you able to get ample supply and what kind of risk do you think you have there over the next couple of quarters?

Andrew J. Brown

Yeah, you know, I mean, clearly in the early days of Centro, we had some supply constraints but as we see the business today, we don’t anticipate, certainly over the next couple of quarters, any supply constraints. We think we’ve caught up at this point.

Tavis McCourt - Morgan Keegan

And Andy, an accounting question here -- in terms of the incremental marketing spend, does all of that hit the OpEx line? Or is there some that becomes kind of a contra revenue account?

Andrew J. Brown

No, I’m talking pure marketing expense, so it’s all the operating expense line and once again, it’s to drive the top line, partly with new product introductions and then clearly as we go through the next couple of quarters, there are seasonal events that we may be investing in.

Tavis McCourt - Morgan Keegan

Great, and then a final, the DSOs, would you expect that to be back up to kind of a normal range next quarter?

Andrew J. Brown

Yeah, I would expect both the DSOs and the inventories quite frankly to get back to a more normal range. Our normal range for DSOs, you know, kind of in the mid-40s -- 42 to 45-ish and then inventories are -- you know, have come down more into the normal range now that we’ve shipped the Centros into Verizon.

Tavis McCourt - Morgan Keegan

Great. Thanks a lot and good luck.

Operator

(Operator Instructions) Your next question will be from the line of James Faucette of Pacific Crest. Please proceed.

James Faucette - Pacific Crest Securities

Thanks a lot. I just had a couple of questions, Andy, and I apologize -- I know you said, and to everybody on the call, but could you just repeat again what your smartphone shipments were and what that was as a percentage of your revenue, or what the actual revenue number was?

Andrew J. Brown

The smartphone revenue for the quarter was $265.6 million, and that was based upon 913,000 units.

James Faucette - Pacific Crest Securities

Okay, great. And then, as far as from a planning and modeling standpoint, the tax benefit amount has been bouncing around a fair amount. How should we be looking at that, at least as we can expect the loss making to continue for the next couple of quarters?

Andrew J. Brown

That’s a good question, James. That’s a difficult one to project. You know, a big part of that has to do with our international operations and ability to take deductions for some of those losses. But from a non-GAAP standpoint, you know, I would suggest to you that you use a 40% tax rate. That would probably be the --

James Faucette - Pacific Crest Securities

Forty?

Andrew J. Brown

Yeah.

James Faucette - Pacific Crest Securities

Okay. Okay, and then I guess from a -- just drilling down a little bit on the OpEx, you say your core OpEx should be stabilizing here, so from that should we assume that that’s really true across the difference aspects, that R&D and G&A, we should expect to stabilize at these levels for the foreseeable future and that the sales and marketing will just fluctuate and as you are saying, increase as you launch new products?

Andrew J. Brown

Well, I think directionally, like I said, where we anticipate to see the core increases are in variable marketing dollars. But having said that, there’s always quarter to quarter fluctuations, for example, in engineering depending upon what you are doing as far as prototype purchases and things like that, so there will always be variances there.

I would also caution you on the G&A line, and we did take a credit for -- from our bad debt reserves on the G&A line, so that had a fairly significant benefit there. But in general when you look at the overall OpEx, the way you need to look at it is that we are trying to keep it reasonably flat to Q4, and then we’ll be adding some incremental variable marketing programs, which as you can we can turn on or turn off fairly quickly.

James Faucette - Pacific Crest Securities

Great, and then maybe a question for you, Ed, is that on the new product launches that you’ve got set up for the second half of this calendar year, and specifically the Windows Mobile refreshes I’m referring to, should we expect that some of those products, or maybe all of them will initially launch with exclusives, similar to what the Centro did? Or are these going to be products that are more likely to find their way into multiple channels within a relatively short period after initial availability?

Edward T. Colligan

You know, each one of the different launches will have a little different dynamics and -- but in general, they will be pretty broadly distributed early out the gate, and so I wouldn’t -- you know, they are not going to be exclusive for any period of time, you know, in any particular region.

James Faucette - Pacific Crest Securities

Great. Thank you very much. Thanks for your help, guys.

Edward T. Colligan

Okay. We’ll take one more question, Operator, please.

Operator

Yes, and that question will be from the line of Michael [Walkley] of Piper Jaffray. Please proceed.

Michael Walkley - Piper Jaffray

Great, thanks. Just a little more color in the Centro sell-through. I think last quarter you were sharing a run-rate per week. Could you update that now that you are at multiple carriers, just to help us in thinking about modeling?

Edward T. Colligan

Well, I mean, it’s clearly increased. You know, we are seeing -- during the quarter we saw the full benefit of AT&T coming online, along with Centro and as we’d mentioned last quarter, it was accelerating through the quarter. We just don’t want to get into specifics of sell-through at this point in time. Needless to say, you know, the sell-through -- when you look at our sell-through, we had a nice up-tick, 19% quarter over quarter and the vast majority, if not all of that, was the Centro product.

Michael Walkley - Piper Jaffray

That’s fair. And in terms of like the Sprint channel that it’s been in, with new smartphones coming in, like the Instinct launch and so forth, have you seen any kind of impact from that or is the Centro a differentiated, separate product with the keyboard?

Edward T. Colligan

I think it’s done really well with a number of new products coming into the Sprint lineup, so we’ve seen continued positive momentum. Of course, it bounces around a little bit week to week, relative to new product launches, but overall I would say it’s been really resilient.

Michael Walkley - Piper Jaffray

Okay, great. Thank you very much.

Edward T. Colligan

Thank you, and thank you, everyone, for joining us. Very much appreciate it. Look forward to talking to you all next quarter.

Operator

Thank you for your participation in today’s conference. This concludes our presentation and you may now disconnect. Have a great day.

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Source: Palm F4Q08 (Qtr End 5/30/08) Earnings Call Transcript
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