PDAction

Revenue Totals $355.8M; Operating Income up 28% Year-over-Year

SUNNYVALE, Calif., Sep 21, 2006 (BUSINESS WIRE) — Palm, Inc. (Nasdaq:PALM) today reported revenue of $355.8 million in the first quarter of fiscal year 2007, ended Sept. 1, up 4 percent from the year-ago period. Operating income rose 28 percent from the year-ago period.

Net income in the fiscal quarter totaled $16.5 million, or $0.16 per diluted share. Net income included stock-based compensation expense of $6.7 million and amortization of intangible assets of $0.3 million. This is the first quarter in which Palm implemented SFAS 123R, which includes the expensing of stock options, restricted stock and the company’s employee stock purchase plan in GAAP(1) results. This compares to net income for the first quarter of fiscal year 2006 of $18.2 million, or $0.18 per diluted share.

Net income for the quarter, on a non-GAAP basis, totaled $21.5 million, or $0.21 per diluted share, excluding stock-based compensation expense and amortization of intangible assets, and adjusting the income-tax provision to 40 percent. This compares to non-GAAP net income in the first quarter of fiscal year 2006 of $13.7 million, or $0.13 per diluted share, excluding amortization of intangible assets and deferred stock-based compensation and adjusting the income tax provision to 40 percent.

“We executed well on a number of fronts, significantly increasing profits and Treo sell-through,” said Ed Colligan, Palm president and chief executive officer. “The product announcements we made this month put us in an even better position to meet marketplace demands and extend our worldwide reach.”

In a related news release issued today, the company announced that it has received approval from its board of directors to repurchase up to $250 million worth of Palm shares outstanding.

Second Quarter Fiscal Year 2007 Outlook

Based on current trends, Palm provided its outlook for financial results in the second quarter of fiscal year 2007, which ends Dec. 1. The company expects the following:

– Revenue to be in the range of $430 million to $450 million;

– Gross margin to be between 33.3 percent and 33.8 percent on a GAAP basis and between 33.5 percent and 34.0 percent on a non-GAAP basis;

– Operating expenses to be between $121 million and $124 million on a GAAP basis and between $115 million and $118 million on a non-GAAP basis;

– The tax rate on a GAAP basis to be 42.5 percent and, on a non-GAAP basis, 40 percent;

– Earnings per diluted share to be between $0.15 and $0.18 on a GAAP basis and between $0.20 and $0.23 on a non-GAAP basis; and

– SFAS 123R stock-based compensation expense, before taxes, to be between $6.5 million and $7.0 million and amortization of intangible assets to be $0.3 million. These amounts and the related income tax amounts are excluded from Palm’s second quarter of fiscal year 2007 outlook on a non-GAAP basis.

For the remainder of the year, Palm said it will balance top-line growth and market share over profitability. In view of dynamic market conditions, including Palm’s launch of new products and expansion into new geographies, the company is not reaffirming previous annual guidance at this time, and is providing guidance only for the second quarter.

Highlights of the Quarter

During the first quarter of fiscal year 2007, the company accomplished the following:

– Announced a relationship with Vodafone Group, Europe’s largest carrier, and many of its European operating companies, to expand Treo(TM) sales in Europe as part of Palm’s corporate objective to grow the Treo market presence outside the United States. (Following the quarter’s close, Palm announced the availability of a new Treo 750v smartphone, running on Vodafone’s 3G/UMTS network and using the Windows Mobile 5.0 Pocket PC Phone Edition operating system);

– Shipped the Treo 700wx to Sprint in the United States, expanding the Treo 700w family of Windows Mobile-based products;

– Launched BlackBerry Connect for the Treo 650 smartphone with Cingular Wireless in the United States, Vodafone in Australia and Movistar in Spain;

– Launched the Treo 650 in Peru on the Claro network; and

– Established a new carrier relationship with the UK carrier 02.

INVESTORS’ NOTE: The company will hold a conference call for the public today at 2 p.m. Pacific / 5 p.m. Eastern to discuss matters covered in this news release. The dial-in number is 800-818-5264 for callers within the United States and 913-981-4910 for international callers. No passcode is required. A replay of the conference call will be available through Oct. 5, beginning today at approximately 6 p.m. Pacific. The dial-in numbers for the replay are 888-203-1112 for callers within the United States and 719-457-0820 for international callers, passcode 1936471. The live conference call and slide presentation will be available over the Internet by logging onto the investor relations section of Palm’s website at http://ir.Palm.com. An audio replay and text transcript of the conference call also can be accessed at the same URL beginning today at approximately 6 p.m. Pacific.

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