Palm, Inc. (NASDAQ:PALM) today reported preliminary results for its second quarter of fiscal year 2009, which ended Nov. 28, 2008.

The company announced that it expects to record revenues for Q2 fiscal year 2009 in the range of $190 million to $195 million. The revenue decline vs. the company's Q1 fiscal year 2009 and Q2 fiscal year 2008 is a result of reduced demand for maturing smartphone and handheld products. The company stated that while it had expected these factors to pressure revenue in its November 2008 and February 2009 quarters, the difficult economic environment has greatly intensified the negative impact on product sales.

"We are seeing unprecedented dynamics in the global markets as economic uncertainty hampers demand for consumer products," said Ed Colligan, Palm's president and chief executive officer. "In order to ensure Palm's long-term success during these uncertain times, we're taking several steps to significantly reduce our cost structure. These measures will help us navigate this difficult period while launching our next-generation products as planned."

The company is currently implementing several cost-savings initiatives, including reducing its U.S. work force, consolidating its European operations, and shifting responsibility for Asia Pacific sales, marketing and administrative support to its U.S. offices. The company expects that by Q4 fiscal year 2009, these actions and other cost-savings initiatives will reduce quarterly operating expenses by approximately $20 million vs. Q1 fiscal year 2009 levels.

The restructuring charges associated with these and other measures will be recorded as expenses are incurred. In Q2 fiscal year 2009, these charges are expected to total between $7 million and $9 million. Second quarter operating expenses, which will include these charges, are expected to be in line with what the company recorded in Q1 fiscal year 2009.
Palm also announced that it expects its Q2 fiscal year 2009 gross margin as a percent of revenue to be between 18 percent and 19 percent, after accounting for the impact of a charge for inventory component purchase commitments. This charge is expected to be in the range of $10 million to $15 million. The company also expects its cash and short-term investments balance to be between $210 million and $220 million at the end of its second quarter.

Separately, Palm stated that in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," it expects to record a valuation allowance on its U.S. deferred tax assets of approximately $400 million during the quarter. The increase in the valuation allowance does not reflect a change in Palm's outlook, nor will it alter Palm's ability to utilize the underlying net operating loss carry forwards.