Palm post 61% drop in Q3 earnings

(Associated Press via NewsEdge) Palm reported a 61% drop in its third-quarter profits as speculation of a buyout continued to swirl.

Sales of the company's Treo smart phones reached record levels, but increased costs, $5.7 million in stock-based compensation, and $3.7 million in acquisition-related charges hurt Palm's bottom line.

For the three months ended March 2, the Sunnyvale-based company said it earned $11.8 million on revenue of $410.5 million. In the year-ago period, Palm earned $29.9 million on sales of $388.5 million.

Excluding stock-based compensation and other one-time items, Palm said it would have earned $16.5 million, compared with $19.8 million, in the year-ago period.

Palm, whose profits quintupled to $336 million in fiscal 2006, saw its income and revenue take a sharp drop last fall as it faced some execution problems and an onslaught of new competition from deep-pocketed rivals.

But Treo sales jumped 23% to a record high of $354 million in the fiscal third quarter, the company said.

'The record sales "&brkbar; is evidence that users still care about the user experience and trust the Palm brand,' CEO Ed Colligan said.

Rumors of a potential Palm sale rose in recent months as its competition stiffened and news of the company hiring Morgan Stanley to explore its strategic options surfaced.

Colligan repeatedly refused to discuss the takeover rumors.