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Palm Beats Profit Estimates But Lowers Sales Outlook

Palm reported higher-than-expected quarterly earnings but lowered its sales outlook.

The maker of Treo smart phones, subject to repeated takeover speculation, said earnings were actually down from a year earlier because of increased costs and one-time charges.

"The situation where the company beats and then lowers certainly serves to confirm what Motorola came out and said how price weakness is something that certainly is coming home to roost," David Garrity, director of research at Dinosaur Securities, told CNBC.

Motorola shares fell sharply on Thursday after thecompany slashed quarterly earnings forecasts, citing weaker-than-expected mobile phone sales amid a difficult pricing environment, particularly for lower-tier products.

Palm said net income for its third fiscal quarter fell to $11.8 million, or 11 cents a share, from $29.9 million, or 28 cents a share, a year ago. Revenue rose to $410.5 million from $388.5 million.

Excluding stock-based compensation and an in-process research and development charge and amortization, and other items, the company said it had a profit of $16.5 million, or 16 cents.

Analysts expected an adjusted profit of 12 cents a share, on average, on revenue of $403.6 million, according to Thomson Financial.

Looking ahead, Palm said it expects fourth-quarter earnings in a range of 13 cents to 16 cents a share on revenue of $400 million to $410 million. Analysts currently expect the Sunnyvale, California-based company to earn a profit of 14 cents a share on revenue of $416 million.

"The question that gets raised here ... is how well is Palm doing overseas where they picked up Vodafone as a customer and certainly have been trying to expand the geographic range of their markets," said Garrity.

Shares of Palm fell nearly 9% on Thursday after an anticipated buyout of the company failed to materialize.

Cell phone makers Motorola and Nokia and computer hardware companies Dell and Hewlett-Packard have been mentioned as potential acquirers of Palm.

Shares were seen trading up 1% in the after-hours trading session.

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