Palm CEO: We could have been bigger than Droid

Palm products have been selling so slowly that operators have substantial inventories now, executives said

If Palm's WebOS products had gone on sale at Verizon before Motorola's Droid, Palm's fortunes today would be very different, the company's CEO said Thursday during its third-quarter earnings call."

"If we could have launched at Verizon prior to the Droid, I think we would have gotten the attention the Droid got. And since I believe we have a better product, I think we could have even done better," said Jon Rubinstein, Palm's CEO.

Instead, sales of the Palm Pre and Pixi have been below expectations enough that the company's carrier partners now have stockpiles of the phones, and in February Palm warned that its earnings would be lower than previously expected.

In the current quarter, Palm is focused on "helping carriers work down their substantial inventories," said Doug Jeffries, Palm's chief financial officer.

As a result, Palm expects to sell even fewer phones in the fourth quarter, and predicts revenues of less than $US150 million. It couldn't say how long it expects it will take to work through that inventory. "We have a ways to go and it will take some time to work through it," Jeffries said.

On Thursday, Palm reported third-quarter revenue of $349.9 million using generally accepted accounting procedures. That compares to $90.6 million in the same quarter last year.

Third-quarter revenue was actually more than Palm expected when it issued its warning last month. At that time, it said it was expecting revenue of between $300 million and $320 million. Still, Palm said not to expect a corresponding bump to full-year revenue. The revenue was better than Palm thought only because a couple of shipments slipped in unexpectedly before the end of the quarter, Jeffries said.

Palm reported a non-GAAP net loss for the third quarter of $102.8 million, or $0.61 per diluted share. That compares to a smaller loss in the same quarter last year of $94.7 million, or $0.86 a share. Analysts were predicting a loss for the third quarter of $0.42 per share.

"We are proceeding through a very challenging period," Jeffries said. "We are under no illusions about the hard work in front of us."

Palm has already begun executing on plans to improve sales and says that those efforts are beginning to pay off. It has started sending "Palm brand ambassadors" to essentially all Verizon stores to better train sales people on Palm products.

"But we know sales and marketing can only take us so far," Rubinstein said. So the company is working hard to improve WebOS products. WebOS is Palm's new mobile operating system. Since it launched on the Pre nine months ago, Palm has pushed out 10 over-the-air updates, he said. Those updates have improved battery life, enhanced all the core applications and boosted response times on the phones.

Palm is also working hard to make its application developer environment attractive. There are now 2,000 apps in the Palm catalog, he said.

Even though Rubinstein said that Palm would be doing better if it had beat the Droid to Verizon, he also said such successes are unusual and urged analysts to be patient. "It takes a while to get the momentum going to get to that tipping point. It's rare to see something take off," he said. While sales figures for the Droid have not been officially released, the phone is thought to have sold well.

He also said that the reason the Pre wasn't offered by Verizon sooner was because of an exclusive arrangement with Sprint that prevented sales at other operators during a limited time period.

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Nancy Gohring

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