Sept. 18 (Bloomberg) -- Palm Inc. reported a fifth straight quarterly loss after sales of its Treo and Centro e-mail phones fell further behind Research In Motion Ltd.'s BlackBerry. The shares fell 7.5 percent in extended trading.

The first-quarter net loss widened to $41.9 million, or 39 cents a share, from $841,000, or 1 cent, a year earlier, Palm said today in a statement. Revenue rose 1.7 percent to $366.9 million.

Palm's $99 Centro failed to counter gains by the BlackBerry and Apple Inc.'s iPhone. While the company sold two million Centro phones in less than a year, the device isn't as profitable as the Treo. Revenue will drop in the second quarter from the first as Centro sales slow, Palm said.

``They are just not going to have the new product launches this quarter that they had last quarter,'' said Tavis McCourt, an analyst at Morgan Keegan & Co. in Nashville, Tennessee. He recommends buying the shares and doesn't own any. ``This market -- so much of it is driven by product launches.''

Palm, based in Sunnyvale, California, fell 64 cents to $7.85 in extended trading, paring an 18 percent gain in regular Nasdaq Stock Market trading. The shares have climbed 34 percent this year.

Chief Executive Officer Ed Colligan introduced the $549 Treo Pro last month to snap a sales slump and improve profit margins. The device will compete against the BlackBerry Bold, which is expected to go on sale in the U.S. next month, and Apple's $199 iPhone 3G.

`Under Pressure'

``Revenues will still be under pressure and profits elusive'' over the next few quarters, Colligan, 47, said on a conference call with analysts.

Excluding stock-based compensation, the loss was 12 cents a share, better than the 19-cent average of estimates in a Bloomberg survey of analysts. Sales projections averaged $327.1 million for the period ended Aug. 31.

Gross margin, or sales left after production costs, narrowed to 26.5 percent from 36.2 percent a year earlier. That drop was caused by the Centro, said Pablo Perez-Fernandez, an analyst with Global Crown Capital in San Francisco. He recommends buying the shares, which he doesn't own.

Profitability will improve as Palm works to cut the cost of making Centro phones and new Treo models account for a larger portion of sales, Chief Financial Officer Andrew Brown said.

The company sold 1.03 million phones in the period, compared with the 1.19 million estimated by Perez-Fernandez.

Short Sellers

In the second calendar quarter, Palm's share of the U.S. smartphone market fell to 10.8 percent from 13.4 percent in the previous three months, according researcher IDC in Framingham, Massachusetts. Research In Motion, based in Waterloo, Ontario, increased its share to 53.6 percent from 44.5 percent.

U.S. regulators' steps to limit short-selling probably contributed to the jump in Palm's stock today, McCourt said. Short interest in Palm was 36.9 million shares at the end of August, compared with about 23.1 million a year earlier. In a short sale, an investor sells borrowed shares in an attempt to profit by buying them back at a lower price and returning them to the owner.

``It's got a very big short position to it,'' McCourt said. ``It's got a very volatile stock price because of that.''

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Last Updated: September 18, 2008 18:36 EDT