PalmSource posts 4Q profits and to cut jobs

[Colin Dunstan]

PalmSource stock (symbol: PSRC) fell by more than 10% in after-hours trading today when the company reported fourth-fiscal quarter revenue that slipped from last year and issued a forecast for the current period that was well below analysts' expectations.

The company saw revenue slip nearly 2% for its fourth fiscal quarter, though earnings for the period got a boost from selling its rights to the "Palm" brand to PalmOne last month. The company reported earnings of $18.3 million, or $1.12 a share, compared to a loss of $2.9 million, or 23 cents a share, for the same period last year. Revenue declined to $17.3 million from $17.6 million last year.

PalmSource also announced that it would restructure by cutting 16 percent of its U.S. work force, with a majority of the cuts in "middle and senior management positions, including three senior vice presidents."

Read the full first quarter results here and to listen to the archived earnings call click here.

[Bob Russell]

I think the lull in devices and the lack of cobalt phones hurt them. Plus they must be investing a lot in China MobileSoft and even the Linux transition work. I suspect there's going to be one or two more lean years. But my feeling is "look out" after that if things go well.

[Voice_of_Reason]

Originally Posted by BobR

I think the lull in devices and the lack of cobalt phones hurt them. Plus they must be investing a lot in China MobileSoft and even the Linux transition work. I suspect there's going to be one or two more lean years. But my feeling is "look out" after that if things go well.

Do you really think PalmSource can last 2 years by itself?

[Bob Russell]

Of course! PalmOne is committed for a number of years now. I don't think there are any financial problems at PalmSource. There may be some Cobalt phones coming out anytime. And whether or not PalmOS devices are selling like hotcakes or not, they are still selling. They'll be fine. But like any company, they need to be able to execute going forward.

[derekweb]

Originally Posted by Voice_of_Reason

Do you really think PalmSource can last 2 years by itself?

Yes.

Reasoning :
1) They are still building products that, as currently, there is demand for

2) They have a new product pipeline from Linux/BE starting material (not sure if it's exactly linux or whatnot, but the source is essentially from GPL ware type Linux of some sort). This cuts down on several costs on the back end, and increases portability across several new frontiers of devices and embedded devices. With Palmsource being a well known brandname that caters to EASE OF USE, and having a great deal of functionalityand stability, I can easily see them marketing to this angle to attract new business in other devices, not just PDAs or PDA Phones.

3) They made a profit in 4Q. Just because Wall Street threw a hissyfit for PalmSource not making MORE money is Wall Streets' problem. I call that more of an Expectation issue, than a performance issue.

Now. Does all of this negate any future need of performing and hitting goals? No. PalmSource has less of a margin for error than someone like, say .. Microsoft or Intel. As such, they need to be mindful of their goals, they need to continue executing them, and they need to budget for some room for errors (as they always happen) and they absolutely MUST guide both Wall Street and End Consumers on Expectations! Expectations and Performance are what make and or break a company in terms of being able to secure financing as well as sales on products.

[Voice_of_Reason]

Originally Posted by derekweb

Yes.

Reasoning :
1) They are still building products that, as currently, there is demand for

2) They have a new product pipeline from Linux/BE starting material (not sure if it's exactly linux or whatnot, but the source is essentially from GPL ware type Linux of some sort). This cuts down on several costs on the back end, and increases portability across several new frontiers of devices and embedded devices. With Palmsource being a well known brandname that caters to EASE OF USE, and having a great deal of functionalityand stability, I can easily see them marketing to this angle to attract new business in other devices, not just PDAs or PDA Phones.

3) They made a profit in 4Q. Just because Wall Street threw a hissyfit for PalmSource not making MORE money is Wall Streets' problem. I call that more of an Expectation issue, than a performance issue.

Now. Does all of this negate any future need of performing and hitting goals? No. PalmSource has less of a margin for error than someone like, say .. Microsoft or Intel. As such, they need to be mindful of their goals, they need to continue executing them, and they need to budget for some room for errors (as they always happen) and they absolutely MUST guide both Wall Street and End Consumers on Expectations! Expectations and Performance are what make and or break a company in terms of being able to secure financing as well as sales on products.

But:

1) The demand keeps dropping. With around a $75 million net worth (after liabilities are accounted for) PalmSource's assets could be burned through fairly quickly. Slashing expenses might look good on paper, but the engineering and other personnel that have been downsized were presumably serving a function in the company, so those losses will have a negative impact.

2) PalmLinux is AT LEAST 1 or 2 years from completion (and 2 or 3 years from shipping in any devices that consumers can actually buy).

3) Excluding that whopping one-time $26.7 million payment PalmSource received from pa1mOne for the right to the "Palm" name, PalmSource would have posted another loss for the quarter:

http://www.palminfocenter.com/view_story.asp?ID=7920

"Non-GAAP net loss for the quarter was ($0.7) million or ($0.04) per share, as compared to non-GAAP net loss of ($0.6) million or ($0.05) per share in the year ago quarter. Non-GAAP net loss and loss per share for the fourth quarter of 2005 excluded the following:

$26.7 million for a gain on the sale of assets (the Company's interest in Palm Trademark Holding Company, LLC) to palmOne, Inc.
$2.7 million for restructuring charges related to the reorganization
$2.5 million related to the severance package for the Company's former CEO
$2.3 million for stock-based compensation expense
$0.2 million for amortization of purchased intangible assets"

What will PalmSource sell off next quarter to keep theselves from a sea of red ink? Their furniture? Open a kissing booth? Until they announce a licensee SHIPPING large numbers of a cellphone running PalmOS, I honestly can't see how these numbers will turn around. If only PalmSource could have made PalmOS a defacto standard by convincing Sony Ericsson, Motorola, Siemens, Sanyo and LG to ship cellphones running PalmOS this year. Cut OS license prices and make it up on volume.

TVoR

[TadW]

What is the problem with extraordinary profit gains? Do you blame them for being so lucky that someone pays them $26.7m for a simple trademark?

Also, you are talking that PalmSource is running out of money and won't last much longer. Based on what? Can you tell me their current asset base? What exactly is their burn-rate? Instead of throwing random numbers in here why don't you show us some real proof for your claims?