Treo Smartphone Sell-through and Revenue Hit Record Highs

SUNNYVALE, Calif., March 22, 2007 – (Press Release) Palm, Inc. today reported revenue of $410.5 million in the third quarter of fiscal year 2007, ended March 2. Smartphone sell-through for the period reached a company record high totaling 738,000 units, up 30 percent year over year and up 20 percent sequentially.

Net income in the fiscal quarter totaled $11.8 million, or $0.11 per diluted share. Net income included stock-based compensation expense of $5.7 million, an in-process research and development charge from acquisitions during the quarter of $3.7 million and amortization of intangible assets of $0.3 million. This compares to net income for the third quarter of fiscal year 2006 of $29.9 million, or $0.28 per diluted share.

Net income for the quarter, on a non-GAAP basis, totaled $16.5 million, or $0.16 per diluted share, excluding stock-based compensation expense, an in-process research and development charge and amortization of intangible assets, and adjusting the income tax provision to 40 percent. This compares to non-GAAP net income in the third quarter of fiscal year 2006 of $19.8 million, or $0.19 per diluted share, excluding the effects of amortization of intangible assets and deferred stock-based compensation, the related income tax provision, and the partial reversal of Palm’s valuation allowance against its deferred tax assets.

“We delivered solid results in the third fiscal quarter and continue to expand our global market presence,” said Ed Colligan, Palm president and chief executive officer. “Treo smartphone sell-through and revenue reached record levels, and Palm products were available to smartphone customers through seven of the top 10 carriers in the world.”

Fourth Quarter Fiscal Year 2007 Outlook

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

• Revenue to be in the range of $400 million to $410 million;

• Gross margin to be between 35.9 percent and 36.4 percent on a GAAP basis and between 36.0 percent and 36.5 percent on a non-GAAP basis;
• Operating expenses to be between $130 million and $135 million on a GAAP basis and between $124 million and $129 million on a non-GAAP basis;
• Annual tax rate on a GAAP basis of 40 percent and, on a non-GAAP basis, 40 percent;
• Earnings per diluted share to be between $0.10 and $0.13 on a GAAP basis and between $0.13 and $0.16 on a non-GAAP basis; and
• SFAS 123(R) stock-based compensation expense, before taxes, to be between $5.0 million and $5.5 million and amortization of intangible assets to be $1.0 million. These amounts and the related income tax amounts are excluded from Palm’s fourth quarter of fiscal year 2007 outlook on a non-GAAP basis.

Conference Call

The company will hold a conference call for the public today at 1:30 p.m. Pacific / 4:30 p.m. Eastern to discuss matters covered in this news release. Investors and other interested parties are encouraged to listen to the call by logging on to the conference call webcast prior to the start of the conference call at Palm’s Investor Relations website. Participants will be able to simultaneously view the slides during the call. Investors wishing to listen to the conference call via telephone may dial 800.819.9193 (domestic) and 913.981.4911 (international).

There is no passcode required for the call. A telephone replay of the conference call will be available through April 5, 2007. The dial-in number for the replay will be 888.203.1112 (domestic) and 719.457.0820 (international), passcode 1855744. An archive of the audio and visual portion of the conference call will be posted on Palm’s Investor Relations website at http://investor.palm.com.

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This is an excerpt of the full press release available from Palm.com.

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