By Dan Gallagher

Shares of Palm Inc. (PALM) rallied out of the box Friday, quickly rising 10% as investors reacted favorably to the handset maker's fourth-quarter financial results.

Late Thursday, the company reported its quarterly losses widened on a sharp drop in sales. Palm's fiscal fourth quarter ended May 29, a week or so before the company's popular Pre smart phone went on sale.

Shares were last up 9.5% at $15.35.

The company didn't issue a forecast for the current period, but said it expects to be cash-flow positive by the end of the calendar year.

"We think the Pre is by far the best product we have ever shipped, and I am very happy with how we're managing the launch," Palm CEO Jon Rubinstein said on a conference call. "We're successfully ramping supply to meet demand that is strong and growing."

Palm launched the Pre on June 6 and is betting heavily on the new device - as well as its new webOS operating system - to revive its struggling smartphone business, which has suffered loss of market share to rivals such as the iPhone and BlackBerry.

Rubinstein noted that the company faces "vigorous competition" in the smartphone space now dominated by the BlackBerry from Research In Motion (RIMM) and the iPhone from Apple Inc (AAPL).

Yet Rubenstein also argued that there is room for Palm, an early pioneer in the market that has since lost much of its share to the competition.

"Such significant growth means there is room for three to five players to win in this space," he said. "We don't have to beat each other to prosper."

'Sufficient Capital'

For the fourth quarter, the wireless device maker reported a loss of $91.5 million, or 78 cents a share, compared to a loss of $43.4 million, or 40 cents a share, for the same period the previous year.

Excluding stock-option charges and expenses related to restructuring, Palm said net losses would have totaled $53.4 million, or 40 cents a share, for the recent period. Analysts were expecting a loss of 62 cents a share for the quarter, according to consensus forecasts from Thomson Reuters.

Revenue fell 71% to $86.8 million. Analysts were expecting revenue of $80.6 million.

Smartphone shipments totaled 351,000 units and smartphone sell-through was 460,000 units. The company said shipments included the Pre as well as the Treo Pro, though sales of its maturing Centro line are slowing.

Palm said it had $255.1 million in cash and equivalents by the end of the period. CFO Doug Jeffries said the company has "sufficient capital to support our current operating plan and to make the necessary investments in marketing product development and operations to drive long-term success."

Palm kept to its habit of not giving a forecast for the current period. Jeffries said the company expects to turn cash-flow positive by the second half of the company's 2010 fiscal year, meaning the end of November.

 
   Growing The Developer Base

Like the iPhone, the Palm Pre includes an online app store. Rubinstein said more than one million apps have been downloaded since the launch of the Pre, but the store still lags by far the popular App Store at Apple.

Palm is still working to get development kits, or SDKs, out to the community of developers who want write applications for webOS. He said the company has "hundreds" of developers working on applications now, and plans to have "thousands" when the final kits ship by the end of the summer.

"We have a lot of people in the queue, and so I don't think we have had a real issue as of yet with interest out there," he said.

-Dan Gallagher; 415-439-6400; AskNewswires@dowjones.com