Quarterly Earnings Decline Reported by Palm

Palm Inc., the maker of Treo smart phones, said Thursday that its profit for its fiscal first quarter slipped as it accounted for stock option expenses for the first time and grappled with slow sales growth amid tougher competition.

For the three months ended Sept. 1, the Sunnyvale, Calif.-based company said it earned $16.5 million, or 16 cents a share, compared with $18.2 million, or 18 cents, a year ago. Revenue increased 4% to $355.8 million.

Excluding $6.7 million in stock-based compensation and other one-time items, Palm said it would have earned $21.5 million, or 21 cents a share. In the year-ago period, Palm’s adjusted net income was $13.7 million, or 13 cents a share.

Analysts polled by Thomson Financial were expecting, on average, adjusted earnings of 18 cents a share on revenue of $354.4 million.

Palm is facing increasing competition in the smart phone market amid new and lower-priced offerings from its longtime rival Research in Motion Ltd., maker of BlackBerry devices, as well as Motorola Inc. and Nokia Corp.

Palm plans to expand its global efforts to grow sales and last week introduced its new Treo 750v in Europe, a region in which the company has had minimal market share. The company also plans to introduce a lower-priced Treo model for consumers this year.

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

For the second quarter, Palm predicted that sales would be $430 million to $450 million and that earnings would be 15 cents to 18 cents a share. It expects that earnings excluding one-time items will be 20 cents to 23 cents a share.

Shares of Palm fell $1.11, or 7%, to $14.50. In extended trading following the release of its report the stock rose 54 cents, or 3.7%.