|[3:30 PM] Palm Inc. Announces Stellar Quarterly Results, Margins Even Higher Than Apple's
by Wes George
Palm Inc. (PALM) the Palm Pilot spin off from the 3COM corporation (COMS) beat earnings estimates from Wall Street in their first earning report as a publicly traded company, but now the company warns that things don't look so rosey in the near future.
Third quarter earnings for the company were up a remarkable 116% from a year ago to $272 million. And while margins did decline from a year ago to 43.6% today, that's still about double the computer industry average. Apple, the best desktop manufacturer in terms of gross margins recently reported margins of 26% in their 1st fiscal quarter. That's down from 28.4% the prior quarter. Most PC vendors have gross margins significantly lower.
Palm CFO Judy Bruner said in a conference call yesterday that margins and the revenue growth rate will decline going forward. "We are consciously bringing our operating margins down over the next 12 to 18 months." She sees margins at 35 to 40% going forward. Higher expenses in the next year will lead to operating losses, she said.
The Mac Observer Spin: The Palm Pilot is a cool product and even with revenues slowing, Palm's growth is far above the industry average. Like any good technology CFO, Ms Bruner's warning is designed to keep the expectations in line for the company so that earnings estimates going forward remain beatable.
Nevertheless, with a price to earnings ratio of 913, the price per share for Palm Inc. is highly overvalued. If Apple had a PE ratio of 900, AAPL would be trading at close to $4000 per share!
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