Smart phone maker Palm Inc. fell short of Wall Street expectations Thursday when it reported a 24 percent drop in third-quarter revenue as it continued to push its lower-margin $99 Centro model.The company lost $31.5 million, or 30 cents per share, compared to a profit of $11.8 million, or 11 cents per share in the year-ago period. The company has struggled with stiff competition in the mobile phone market, including the release last June of Apple Inc.'s iPhone, and a company reorganization that started last year.

Chief Executive Ed Colligan said Palm's reorganization is working, however, and emphasized that Palm sold 833,000 Centros in the quarter.

"We've come through a tough quarter and continue to have a lot of work ahead of us," Colligan said in a conference call with investors. "But I am more confident than ever that we are on the right track to build long-term value."



Revenue for the fiscal third quarter was $312.1 million, compared to $410.5 million a year earlier.

The company plans to record a write-off for the third quarter reclassifying $74.7 million of auction-rate securities, it said in a press release Thursday.

Excluding one-time items, the Sunnyvale, Calif.-based company lost $17 million, or 16 cents per share, down from the profit of $16.5 million, or 16 cents per share, it reported a year earlier.

On that same basis, analysts polled by Thomson Financial expected Palm to report a loss of 14 cents per share on $315.3 million in revenue.

Palm laid off 86 people in California last December, according to public records filed with California's Employment Development Department.

Palm's stock closed Thursday at $4.72, up 17 cents, or 3.7 percent. The stock fell 12 cents, or 2.5 percent, in after-hours trading following the release of Palm's results.

The company has said it would stop providing specific guidance for future performance, but Colligan indicated rough times ahead.

"This quarter is going to continue to be a tough quarter relative to top-line pressure," Colligan said in the conference call. "We're not going to return to profitability next quarter. There's a high probability of that."

Colligan said he expects the company to turn around in the first quarter of fiscal 2009.

"That will be a combination of having been more fully distributed in Centros and Centro momentum and getting those Windows Mobile products into the mix," he said.

The company is in the process of developing a new Linux-based operating system that will be compatible with Windows Mobile.

Competition from Motorola, Samsung and Apple's iPhone is one of Palm's top challenges, Citigroup analyst Jim Suva said in a research note published Thursday.

"We believe Palm is facing numerous challenges, including increased competition due to new entrants into the smart phone, which we believe could impact unit sales" and prices, Suva said.

He noted that many smart phone makers have already sold at least 1 million of their latest models.

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