December 17, 2009 / 11:00 PM / in 9 years

UPDATE 2-Palm posts wider-than-expected loss, shares fall

* Q2 loss ex-items 37 cts vs Street view loss 32 cents

* Cites lower-than-expected demand among Sprint customers

* Shares fall 4 percent (Adds analyst quote, share price update)

SAN FRANCISCO, Dec 17 (Reuters) - Palm Inc PALM.O reported a wider-than-expected quarterly loss as consumer demand for its smartphones was hurt by increased competition, sending shares down 4 percent on Thursday.

Investors worried about Palm’s hefty costs as it tries to turn around its business and about increasing competition from phones based on Google Inc’s (GOOG.O) Android system at Sprint Nextel (S.N), the only U.S. operator that sells Palm’s Pre and Pixi phones.

Palm’s report contrasted with stronger-than-expected results at Research In Motion RIM.TO, which also forecast strong demand for the current quarter.

Both companies face competition from rivals such as Apple Inc’s (AAPL.O) iPhone.

On a conference call with analysts, Palm itself cited lower-than-expected consumer demand among Sprint customers, who also had a choice of Android phones from HTC Corp (2498.TW) and Samsung Electronics (005930.KS).

Palm reported a net loss of $81.9 million, or 54 cents a share, in its fiscal second quarter ended Nov. 30, versus a year-ago net loss of $506.2 million, or $4.64 a share.

Excluding items, Palm posted a loss or 37 cents a share, which was wider than the average analyst forecast for a loss of 32 cents, according to Thomson Reuters I/B/E/S.

Analysts noted that Palm’s expenses are high as it tries to turn around the business by pushing phones based on its new webOS mobile system.

“Number one, when do they sign more carriers beyond Sprint here in the U.S?” said Shaw Wu, an analyst at Kaufman Bros. adding, “At what time can they leverage their spending?”

The company said it shipped a total of 783,000 smartphone units during the quarter, up 41 percent from last year.

But smartphone sellthrough units — which reflect how many phones actually end up in consumers’ hands — totaled only 573,000, which was down 4 percent from the year-earlier period and 29 percent lower than the previous three months.

“Sell through, which reflects sales from carrier customers to subscribers, was disappointing. We thought it would be disappointing and it was even weaker than we expected,” said Matt Thornton, an analyst at Avian Securities.

Shares of Sunnyvale, California-based Palm closed at $11.72 on the Nasdaq and fell to $11.25 in extended trading. Shares of Palm are up more than three-fold this year, but down more than 30 percent from a 2009 peak reached in September. (Reporting by Gabriel Madway in San Francisco, Gina Keating in Los Angelos and Sinead Carew in New York; Editing by Gary Hill)

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