Palm Reverses Sales Slide, Narrows Quarterly Loss

Palm Inc., the world’s biggest maker of hand-held computers, said Thursday that its fiscal first-quarter loss had narrowed as sales increased for the first time in five periods and costs related to the separation of its software unit fell.

The net loss in the quarter ended Aug. 31 narrowed to $21.7 million, or 74 cents a share, from $258.7 million, or $8.93, a year earlier, according to Palm, which is based in Milpitas, Calif. Sales rose to $177.4 million from $172.3 million.

Revenue was helped by an increase in average selling price, to $231 from $167.

Gross margin, or the percentage of sales left after production costs, expanded to 35% from 31%. Expenses related to marketing, research and the spinoff of the PalmSource software business declined.

“It’s good news, but you have to take it with a grain of salt,” analyst Dan Morgan said. “They didn’t lose as much money as we thought they would, but we still have to look at what is the future of Palm. I’m questioning where they’ll be in five years.”

Palm has consumed cash from making and selling its devices the last three fiscal years. At the end of August, the company had $266.8 million in cash and investments and $50 million in borrowings. Palm consumed $12.6 million in cash from operations in the first quarter.

Palm shares rose $1.63, or 7.8%, to $22.57 on Nasdaq.

Analysts expected a loss of 83 cents on revenue of $185 million, according to a poll by Thomson First Call.