June 25 (Bloomberg) -- Palm Inc., maker of the new Pre phone, reported a smaller-than-anticipated loss after selling more of its older models than predicted. The shares climbed 15 percent in late trading.

Excluding some costs, the fourth-quarter loss was 40 cents a share, the Sunnyvale, California-based company said today in a statement. That compared with an estimate of 66 cents in a Bloomberg survey of 20 analysts. The company shipped 351,000 smart phones in the quarter, which ended just before the Pre’s debut, topping the 228,000 projected by Goldman Sachs Group Inc.

Palm introduced the Pre on June 6 in a bid to challenge Apple Inc.’s iPhone and restore profitability after two years of losses. The touch-screen device was praised for its new WebOS operating system, which lets users quickly shuffle through applications. Still, it faces fresh competition in the smart- phone market from a new iPhone and an updated Research In Motion Ltd. BlackBerry, due later this summer.

“It’s all about the rebirth of the company with the Pre,” said Jim Suva, an analyst at Citigroup Inc. in San Francisco. “They really pulled it out of the hat with the Pre, but you’ve got a raft of new devices coming onto the market that will only increase competition.”

Shares Advance

Palm rose $2.05 to $16.07 in extended trading after closing at $14.02 on the Nasdaq Stock Market. The shares have more than quadrupled this year on anticipation for the Pre, which was first demonstrated in January at the Consumer Electronics Show.

Palm, which pioneered the market for handheld devices more than a decade ago, fell behind rivals when it failed to update its products quickly enough. The company is using the Pre to rebuild its reputation as an innovator.

The new device also could win back business users. The Pre has generated “a lot of interest” from potential corporate customers, Chief Executive Officer Jon Rubinstein said today on a conference call. That may help Palm challenge RIM, which draws about half its smart-phone revenue from business customers.

Palm has a sufficient amount of cash, Chief Financial Officer Douglas Jeffries said. The company has received $425 million in funding from Elevation Partners, its biggest shareholder. Palm should be generating cash flow by the second half of next year, Jeffries said.

Sales Figures

Palm reported sales of $86.8 million last quarter, which ended May 31. The company also released an adjusted revenue figure of $113.2 million, which excluded the effect of subscription accounting. Analysts had estimated $80.1 million.

Palm’s gross margin, a measure of profitability, was 23.1 percent, or 26.8 percent using the adjusted accounting. That compared with 15.4 percent predicted by Goldman Sachs.

The net loss for common shareholders was $105 million, or 78 cents a share, compared with $43.4 million, or 40 cents a share, a year earlier.

Suva, who has a hold rating on the stock, expects the company to sell 450,000 WebOS devices through the end of August and 675,000 in the three months through November.

“Palm is working as quickly as possible to meet demand,” Rubinstein said on the call. The company will have to ramp up production if orders keep growing, he said.

Other Carriers?

Rubinstein declined to say if more carriers would offer the Pre. Sprint Nextel Corp., based in Overland Park, Kansas, is currently the exclusive provider of service for the device.

“We’re flattered that there are a lot of carriers that are interested in the WebOS and the Pre, but we have nothing to announce at this time,” Rubinstein said.

Apple’s new iPhone also debuted this month, selling 1 million units in its first weekend. RIM’s new Tour phone, meanwhile, is designed to tempt buyers with a sharper screen and compatibility with overseas networks. Motorola Inc. plans to introduce phones with Google Inc.’s Android software in time for the year-end holiday season.

Global shipments of smart phones, which let users check e- mail, surf the Web and download applications, will rise 2.9 percent this year, estimates IDC, a Framingham, Massachusetts-based research firm. That compares with a 12.8 percent decline for the overall mobile-phone market.

To contact the reporter on this story: Hugo Miller in San Francisco at hugomiller@bloomberg.net

Last Updated: June 25, 2009 18:19 EDT