December 18, 2009 / 12:45 AM / in 8 years

UPDATE 3-Palm shares off as Sprint customer demand tepid

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

* Cites lower-than-expected demand among Sprint customers

* Palm says plans to invest heavily to fuel expansion

* Shares fall nearly 8 percent (Adds CEO, analyst comments, forecast, share price update)

By Gabriel Madway

SAN FRANCISCO, Dec 17 (Reuters) - Palm Inc PALM.O reported a wider-than-expected quarterly loss as consumers cooled to its new smartphones in the face of fresh competition including devices based on Google Inc (GOOG.O) software.

Palm shares fell 7.7 percent after the company revealed on Thursday that its partner Sprint Nextel (S.N) was selling fewer Pre and Pixi devices than expected and that Palm planned a marketing blitz to stimulate demand.

The smartphone market teems with rivals, from pacesetters Apple Inc (AAPL.O) and Research in Motion Ltd RIM.TO, to a growing number of new entrants, such as Dell Inc DELL.O.

Investors are worried about Palm’s hefty costs as it tries to turn around its business and about increasing competition from phones at Sprint, the only U.S. operator that sells the 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. [ID:nN16139350]

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

The company said it shipped a total of 783,000 smartphone units during the quarter, up 41 percent from last year and better than many analysts expected.

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.

Palm’s smartphone average selling price was $375 in the November quarter, down from $427 last quarter, reflecting last month’s launch of the lower-cost Pixi.

Still, Palm reaffirmed its fiscal 2010 forecast for revenue of $1.6 billion to $1.8 billion, and Chief Executive Jon Rubinstein said the company plans to spend aggressively and ramp up marketing to push its devices. Palm said its main priority is to grow market share.

“We need to work very hard to get the word out and get people to understand why our products are better than the competition‘s.”

C.L. King analyst Lawrence Harris said the company’s rivals are showing momentum.

“Google with their Android software appears to be gaining traction. Over the next couple of months a longer-term issue is how they address this competitor.”

NARROWER LOSS

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.

Palm is pushing phones based on its new webOS mobile software, and some analysts are impatient for the company to launch with new carriers.

“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?”

Palm said on Thursday only that it will be launching with new carriers in the “near future.”

Some analysts expects Palm to announce plans at the Consumer Electronics show in January for Verizon Wireless to sell one of its phones. Verizon Wireless is a venture of Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L). [ID:nN17180038]

Palm’s shares are extremely volatile and have been a favorite of short-sellers. The company is frequently mentioned as an acquisition target.

Shares of Sunnyvale, California-based Palm closed at $11.72 on the Nasdaq and fell to $10.82 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 Angeles and Sinead Carew in New York; Editing by Gary Hill)

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