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Tickers in this Article: PALM, AAPL, RIMM, S, VZ, GS, JPM
Palm (Nasdaq:PALM) has dazzled the marketplace with new smart phones in 2009, but the company is up against the clock to translate its impressive technological innovation into profits for shareholders. Its fiscal Q1 results reported yesterday had some bright spots, but also left the company with room for improvement.

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A Second Wind

The launch of its Pre smart phone has certainly given Palm new signs of life and reinvigorated the long-term prospects for a company that has been up against the ropes. Palm did not specify how many units of the Pre it sold during its Q1, but overall the company shipped 823,000 smart phones during the quarter which marked a 134% increase over Palm's preceding quarter. Analyst estimates have put sales of the Pre at around 500,000 units for the device's first quarter on the market. (Learn how to gather all the pieces before you start to put together your puzzle The Flow Of Company Information.)

The Pre now gives Palm a fighting chance against the iPhone from Apple (Nasdaq:AAPL) and Blackberrys made by Research In Motion (Nasdaq:RIMM). At the present, Sprint Nextel (NYSE:S) is the exclusive U.S. carrier of the Pre, but Palm will look to expand the distribution of this smart phone in 2009 when Verizon (NYSE:VZ) will added as a carrier. Palm has also cut the price of the Pre by $50 and has unveiled its Pixi smart phone which is positioned to be a more economical alternative to the Pre and is set to debut before the holiday season.

More Dilution
Palm finished its Q1 well ahead of analyst estimates, but still finds itself in the red. The company reported a non-GAAP loss of $0.10 per share compared to Wall Street's expectation of a non-GAAP loss of 25 cents per share. Analysts are expecting Palm to remain in a net loss position for the better part of the company's 2010 fiscal year, but swing to a profit in 2011.

In addition to announcing its Q1 results yesterday, Palm also said that it would be doing a secondary equity offering of approximately 16 million shares of common stock. Given the firm's negative cash flow situation, this was a financially prudent decision. Unfortunately, it is a better deal for Goldman Sachs (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM), who underwrote the deal, than it is for Palm shareholders who will face additional dilution. Palm already did a sizable secondary offering earlier this year. (These investments can add a new level of diversification to your portfolio, read Alternative Assets For Average Investors.)

The Bottom Line
The company is churning out some intriguing new smart phones which the Palm hopes can set it back on the road to profitability. It is running out of time though. If the Pre and the Pixi are unable to reverse the company's financial difficulties in the upcoming quarters, I am not sure that investors will continue to wait on hold all that much longer.

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