Summary:

From the look of things, you would think, Palm One had a great quarter: sales are up nearly 39% to $376.2 million for the second quarter of fiscal year 2005, ended Nov. 26, versus $271.2 million reported during the comparable quarter a year ago. Net income […]

From the look of things, you would think, Palm One had a great quarter: sales are up nearly 39% to $376.2 million for the second quarter of fiscal year 2005, ended Nov. 26, versus $271.2 million reported during the comparable quarter a year ago. Net income was $24.7 million, or $0.48 per diluted share. This compares to income from continuing operations in the year-ago period of $2.6 million, or $0.07 per diluted share. Still the shares tanked in after hours trading by 15% or so. Why?

Lehman Brothers analyst Jeff Kvaal lowered the company to “Equal Weight” from “Overweight” on concerns about slowing sales of palmOne’s popular Treo smartphones, as well as intensifying competition next year from upcoming releases of second- and third-generation keyboard devices from several manufacturers. (Forbes.com)

Reuters adds,

The revenue boost from the Treo 650 handheld computer-based cell phone won’t be felt until the last quarter of the fiscal year while the company irons out technical details with wireless providers, Bradley said.

Well, as I had earlier pointed out — Palm One is sitting on a lot of Treo 600 inventory. At the end of the last quarter, in a conference call, this is what Palm One folks had said,

At the end of Q1 our smartphone channel inventory level was at approximately 10 weeks. We’re comfortable with this level because shipments were skewed toward the third month of the quarter, and because we are seeing increasing sell-through and marketing initiatives from carriers. lower than expected R&D expenses, and delayed trial proceedings which contributed to lower than expected G&A expenses.

Now that number has nearly doubled. Do the math.

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