March 18 (Bloomberg) — Palm Inc. forecast sales that trailed analysts’ estimates as its phones fail to match the popularity of rival models running on Google Inc.’s Android software. The shares fell as much as 15 percent in late trading.

Revenue in the quarter ending in May will be less than $150 million, Chief Financial Officer Doug Jeffries said today on Palm’s third-quarter conference call. Analysts in a Bloomberg survey had estimated $300 million on average. The company also reported its 11th straight quarterly loss.

Palm started selling updated versions of its Pre and Pixi smartphones at Verizon Wireless in January, competing with Research In Motion Ltd.’s BlackBerry and Motorola Inc.’s Droid, powered by Android. In the quarter ended in January, Android’s share of the U.S. smartphone market more than doubled to 7.1 percent, while Palm’s fell to 5.7 percent from 7.8 percent, according to researcher ComScore Inc. in Reston, Virginia.

“They’ve got one more shot here to get it right,” said Matthew Thornton, an analyst at Avian Securities LLC in Boston, who has a “neutral” rating on the shares and doesn’t own them. “They have to come back with a more effective branding push to get the buzz out there.”

Third Quarter

Palm’s fiscal third-quarter loss narrowed to $18.5 million, or 13 cents a share, from $95 million, or 89 cents, a year earlier, the company said today in a statement. Revenue in the period more than tripled to $349.9 million, though that was still below Palm’s original forecasts.

The company’s shares, after tripling last year, have lost more than half of their value in the past two months. They fell as much as 87 cents to $4.78 today in extended trading after the results were released.

Chief Executive Officer Jon Rubinstein said Palm’s efforts to train employees at stores has been inadequate and the company is putting more resources into training sales representatives.

“We’re very realistic about our near-term challenges,” he said.

Excluding some items, Sunnyvale, California-based Palm recorded a loss of 61 cents a share in the quarter ended Feb. 26, compared with the 42-cent average estimate of analysts surveyed by Bloomberg.

WebOS Software

Rubinstein is trying to revive the company with a new operating system called WebOS, which runs on the Pre and Pixi. Palm introduced the Pre through Sprint Nextel Corp. in June. Verizon became the second U.S. mobile operator to carry the phones, and AT&T Inc. said in January that it will start selling WebOS devices in the first half of 2010.

Palm’s smartphone shipments increased 23 percent to 960,000 in the period from the second quarter. Including deferred revenue, sales totaled $366 million, topping the $316 million estimated by analysts.

Promotional costs for new phones contributed to a 32 percent jump in sales and marketing expenses to $98 million from the second quarter. The company’s cash, cash equivalents and short-term investment rose by almost $2 million to $591.9 million.

Palm may be preparing a new product for Sprint this quarter, according to a report this week from Tero Kuittinen, an analyst at MKM Partners in New York. He’s one of the two analysts among the 31 tracked by Bloomberg who recommend buying Palm shares.

“We expect new product launches with Sprint and AT&T to return Palm to a growth trajectory,” he said in the report.
[BusinessWeek]

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