Palm slashes costs after results disappoint

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Palm posted second quarter (Q2) 2009 fiscal results that fell well short of analyst expectations late yesterday.

The struggling smartphone vendor announced that it expects to record Q2 revenues in the range of $190 million to $195 million (£128 million to £131 million). But financial analysts polled by Thomson Reuters were expecting it to achieve $331 million (£223 million).

The company stated that the difficult economic environment had “greatly intensified the negative impact on product sales”. And it said the revenue decline compared to its first fiscal quarter (Q1) 2009 and Q2 2008 was a result of reduced demand for maturing smartphone and handheld products.

Palm has also suffered at the hands of smartphone rival, Research In Motion (RIM) and its BlackBerry handset range, as well as through the explosion in popularity of Apple’s iPhone.

Ed Colligan, Palm president and chief executive officer, said: “We are seeing unprecedented dynamics in the global markets as economic uncertainty hampers demand for consumer products.”

Colligan outlined several steps to reduce Palm’s cost structure by 20 cent before its fourth fiscal quarter (Q4) as a result, while launching its next-generation products as planned.

Among the steps, he reiterated Palm’s intention to cut its US workforce, as announced late last month. But the firm, which employs around 1,050 workers, declined yesterday to add any more detail about the size of any planned job cuts.

Instead, it said it would also consolidate its European operations and shift responsibility for Asia-Pacific sales, marketing and administrative support to its US offices. But again, it was scant on detail.

It said it expected that these cost-saving initiatives to reduce quarterly operating expenses by approximately $20 million (£13.5 million) by the Q4 2009 compared to Q1 fiscal year 2009 levels.

And it forecast gross margin of between 18 and 19 per cent, after accounting for the impact of a $10 million to $15 million (£6.7 million to £10 million) charge for existing component purchase commitments. The company plans to report results for its second quarter on 18 December.

Although Palm made its announcement after the close of stock market trading, its shares immediately lost 9.6 per cent of their value after hours.

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