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SUNNYVALE, Calif.--(BUSINESS WIRE)--Dec. 20, 2005-- Quarterly Revenue $444.6 M; Up 18% Year-over-year; Company Achieves 36% U.S. Converged Device Market Share

Palm, Inc. (Nasdaq:PALM) today reported revenue of $444.6 million in its second quarter of fiscal year 2006, ended Dec. 2, up 18 percent from the year-ago period.

"Achieving the eighth consecutive quarter of year-over-year double-digit revenue growth and growing our converged device market share to 36 percent in the United States(1) are significant accomplishments," said Ed Colligan, president and chief executive officer of Palm. "We'll roll out the Palm Treo 700w smartphone based on Microsoft's Windows Mobile, and we'll announce three additional new smartphones during calendar year 2006."

Net income was $260.9 million, or $5.02 per diluted share. Net income reflected the effect of a partial reversal of a deferred tax asset valuation allowance of $226.3 million. This compares to net income for the second quarter of fiscal year 2005 of $24.7 million, or $0.48 per diluted share.

Net income in the second fiscal quarter, on a non-GAAP(2) basis, totaled $24.4 million, or $0.47 per diluted share, excluding the effects of restructuring charges, amortization of intangible assets and deferred stock-based compensation, the related income tax provision, and the partial reversal of our valuation allowance against our deferred tax asset. This compares to non-GAAP net income in the second quarter of fiscal year 2005 of $27.2 million, or $0.53 per diluted share, which excluded the effects of amortization of intangible assets and deferred stock-based compensation. Non-GAAP net income in the second quarter of fiscal year 2005 was calculated utilizing a tax rate of approximately 19 percent, compared to the 40 percent tax rate in the second quarter of fiscal year 2006.

"During the second quarter, we added seven new carriers to expand the geographic reach of our products, and for the first time we began selling Treo smartphones in China," Colligan said. "We shipped more than 1 million Treo smartphones during the first half of fiscal year 2006, which is just shy of what we shipped in all of fiscal year 2005. With our strong market position, and excellent execution, I have confidence in our long-term growth opportunity."

Fiscal Year 2006 Third Quarter Outlook

Based on current trends, Palm is providing its outlook for financial results in the third quarter of fiscal year 2006, ending March 3, 2006. At this time, the company expects:

-- Revenue in the range of $370 million to $375 million; -- Gross margin between 33.0 percent and 33.5 percent; -- Operating expenses between $100 million and $102 million on a GAAP basis and between $99 million and $101 million on a non-GAAP basis; and -- Earnings per diluted share between $0.46 and $0.49 on a GAAP basis and between $0.31 and $0.33 on a non-GAAP basis, which excludes amortization of intangible assets and deferred stock-based compensation and reflects the difference between utilizing a 40 percent effective tax rate on a non-GAAP basis, compared to approximately 7 percent to 8 percent effective tax rate on a GAAP basis. Strategic Highlights

During the second quarter of fiscal 2006, the company accomplished the following:

-- Announced the development of a next-generation Palm(R) Treo(TM) smartphone, the Treo 700w, which will be introduced to the marketplace in early calendar year 2006. This product is based on Windows Mobile 5.0 and runs on the Verizon Wireless EV-DO network; -- Announced the availability of BlackBerry Connect capability in early 2006 for current and future Treo 650 smartphone users with service through certified carriers; -- Opened its European Engineering Centre in Dublin, where engineers will develop custom software for Palm smartphones in close collaboration with mobile operators in the Europe/Middle East/Africa (EMEA) region; -- Expanded business with seven new carriers during the quarter. They are Hutch in India; TIM in Brazil; TELUS Mobility in Canada; Entel in Chile; Alltel in the United States; and Telefonica/movistar and Iusacell, both in Mexico; and -- Introduced two new handheld computers, the Palm TX, featuring integrated Wi-Fi and Bluetooth(R) wireless technologies and a large, high-resolution color screen, and the Palm Z22, an easy-to-use and compact color organizer priced to compete with paper organizer systems.

INVESTOR'S NOTE: The company will hold a conference call for the public today at 2 p.m. Pacific/ 5 p.m. Eastern to discuss matters covered in this news release. The dial-in number is 866.203.3436 with a passcode of 53266970 in the United States and 617.213.8849 for international callers, with the same passcode of 53266970. A telephonic replay of the conference call will be available through Dec. 27, 2005, beginning today at approximately 6 p.m. Pacific. The domestic dial-in number for the replay is 888.286.8010 and for international callers, it is 617.801.6888, with a passcode of 10980938 for both. The live conference call and slide presentation will be available over the Internet by logging onto the investor relations section of Palm's website at http://ir.Palm.com. An audio replay and text transcript of the conference call also can be accessed at the same URL beginning today at approximately 6 p.m. Pacific.

NON-GAAP FINANCIAL MEASURES: To supplement the company's consolidated financial statements presented in accordance with GAAP, Palm uses non-GAAP measures of certain components of financial performance, including operating income (loss), net income (loss) and per share data, which are adjusted from results based on GAAP to exclude certain expenses, gains and losses. These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance and the company's prospects for the future. Specifically, the company believes the non-GAAP results provide useful information to both management and investors by excluding certain expenses, gains and losses that may not be indicative of its core operating results. These non-GAAP results are among the primary indicators management uses as a basis for planning and forecasting of future periods and facilitating management's internal comparisons to the company's historical operating results and comparisons to competitors' operating results. In addition, because Palm has historically reported certain non-GAAP results to investors, the company believes the inclusion of non-GAAP measures provides consistency in the company's financial reporting. These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. These non-GAAP financial measures may also be different from non-GAAP financial measures used by other companies. Consistent with the company's practice, the non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding Palm's expected third quarter of fiscal year 2006 revenue, gross margin, operating expenses and earnings per share, its tax provision and tax rate, its growth opportunity and the introduction of new product and service offerings. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially, including, without limitation, the following: fluctuations in the demand for Palm's existing and future products and services and growth in Palm's industries and markets; Palm's ability to forecast demand for its products; possible defects in products and technologies developed; Palm's ability to introduce new products and services successfully and in a cost-effective and timely manner; Palm's ability to timely and cost-effectively obtain components and elements of its technology from suppliers; Palm's ability to obtain other key technology from third parties free from errors and defects, integrate it with Palm's products and meet certification requirements, all on a timely basis; Palm's ability to compete with existing and new competitors; Palm's dependence on wireless carriers and ability to meet wireless-carrier certification requirements; Palm's ability to utilize its net operating losses. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Palm's most recent filings with the Securities and Exchange Commission, including its Quarterly Report on Form 10-Q for the fiscal quarter ended Sept. 2, 2005 and its Annual Report on Form 10-K for the fiscal year ended June 3, 2005. Palm undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this press release.

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