Palm Stinks Up Q2: Destroyed By iPhone, RIM

No shocker, because we were warned: has-been smartphone maker Palm (PALM) reported a crappy Q2 this evening, thanks to weak sales, a delay getting one of its new Treos out the door, and higher than expected warranty expenses repairing some of its older products.

The company sold 686,000 smartphones during the quarter, up 11% year-over-year. But that’s hardly impressive considering that last quarter, the U.S. smartphone market itself grew 180% year-over-year, according to research firm NPD Group.

Palm’s quarter is even more lousy in the context of its newest, least-experienced smartphone rival. While Palm is an established company with a multi-national sales channel across many carriers, Apple (AAPL) — which just entered the smartphone industry in June — sold 1.1 million iPhones in its last quarter. On one carrier — in one country.

Overall, Palm reported a net loss of $9.6 million, or 9 cents per diluted share, on $349.6 million of revenue. That’s a sharp decline in profit from a year ago, when the company earned $12.8 million, or 12 cents per share, on $392.9 million of Q2 revenue. One bright spot: Palm’s $99 Centro, available on Sprint Nextel (S), is doing well. But the lower-priced product helped force Q2 gross margin down year-over-year from 35.4% to 29.7%.

Things could get worse before they get better. Palm desperately needs to get sexier phones on the market and its new operating system finished — before Apple and RIM smoke them out of the high-end smartphone market even more.

See Also: How Palm Can Beat Apple’s iPhone: The Flash Phone

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