updated 3/23/2006 7:11:20 PM ET 2006-03-24T00:11:20

Palm Inc. on Thursday said profits surged in its fiscal third quarter, fueled by strong shipments of its Treo smart phones.

Palm shares soared nearly 6 percent on the news.

The Sunnyvale, Calif.-based handheld gadget maker said it earned $29.9 million, or 28 cents per share, in the three months ended March 3, up from $4.4 million, or 4 cents per share, a year ago.

Excluding one-time items and a tax allowance, Palm said it would have earned $19.8 million, or 19 cents per share. That's compared to $10.6 million, or 10 cents per share, in the year-ago period.

Revenue grew 36 percent to $388.5 million from $285.3 million.

Analysts polled by Thomson Financial expected income of 16 cents per share and $374.7 million in revenue.

The company said it shipped 564,000 Treos, including newly released Microsoft Corp. Windows Mobile-based models, to carriers in the quarter. That was more than double the 279,000 units shipped in the year-ago period.

The Treo product line accounted for more than 70 percent of the quarter's revenue, up from 46 percent last year. The jump affirmed Palm's own strategic expectations and reflected an industrywide shift in interests from basic personal digital assistants, which Palm pioneered, to more advanced cell phones that combine PDA, data and voice functions.

In the smart phone category, Palm's key rival has been Resarch in Motion Ltd., whose BlackBerry handhelds are popular among business users. When a recent patent case threatened to shut down the BlackBerry service, analysts said Palm Treos stood to gain.

The patent case has since been settled without any BlackBerry service interruption.

In a conference call with analysts, Palm executives credited the strong quarter not with the temporary black cloud over RIM but on the growing popularity of its Treos. In addition, the Treo Windows-version is opening more doors for Palm in the business segment, said Palm CEO Ed Colligan.

"Most of the growth is related to our execution," Colligan said, "less with what's happening with RIM."

Colligan added that he is well aware of more smart phone competition on the way, most notably from Nokia Corp. and Motorola Inc. He refused to comment on speculation that Apple Computer Inc. might also soon add a cell phone or cell phone features into its product portfolio.

"The category is poised for growth," Colligan said, "But when people come in and try the products in stores and try them against ours, I think they will walk out with the Treo."

For the current quarter, Palm also said it expected revenue to rise, landing in the range of $400 million to $405 million, with earnings excluding one-time items to range between 22 cents and 23 cents.

Wall Street analysts were expecting a fiscal fourth-quarter profit of 20 cents a share on revenue of $394.9 million.

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