Sagio Asset Management Announces Investment Opinion on PALM, Inc.; Sagio Asset Management Increases Ownership of PALM, Inc.; Internal Report Indicates PALM Misunderstood and Underestimated.

BELLEVUE, Wash. -- Today, Sagio Asset Management announced that it has increased its ownership of PALM, Inc. (NASDAQ:PALM) this week from 5% to 6.3% following the recent weakness in the stock's price. It will issue its internal research report on PALM later today at www.sagioinvest.com. The decision to increase its exposure to PALM was precipitated by the market's trust on poorly informed sell-side research. While the weak markets have certainly not helped over the past few weeks, it was yesterday's downgrade by Bear Stearns coupled with the launch of Moto Q from Motorola (NYSE:MOT) that has hit PALM the hardest. The analysts now criticizing PALM are the same ones who warned of soft May quarterly guidance.

PALM beat consensus in February and then guided above Street expectations for May. Sagio Asset Management believes the same dynamic is at play here. PALM is once again being misunderstood and underestimated.

"With few notable exceptions, PALM has been consistently underestimated by the sell-side over the past few years," said Juan Sartori, Chartered Financial Analyst, Sagio Asset Investment. "Yesterday's report was accounting for option expensing without taking into account the real cash tax rate of PALM. We believe PALM cash flows will significantly outperform their EPS due to their previous NOL and as such we would encourage management and the sell side community to look at cash flow based valuation metrics."

"We would be sorely disappointed if PALM's management did not offer clear FY007 guidance in the upcoming Q4FY06 earnings report. Since management repeatedly ignored its call for a stock buyback for strategic reasons and did not answer to Mark Nelson call for a sale of the company, it believes the company should share its own view of the future in more explicit ways," Gualtiero Giori, Investment Manager at Sagio Asset Investment.

Sagio Asset Management has an expectation of 34% top-line growth in FY07 and believes that management will have plenty of wiggle room if it guided for 20% to 25% top line growth. It believes that PALM is worth $30/share by the end of '06 on conservative shipment scenarios, with very probably outcomes supporting a $50 stock price.

PALM'S GROWING PRODUCT LINE

Investors have been warned for over two years that PALM will succumb to intensifying from Motorola, Nokia, and other large handset vendors. Reality has been quite different from those warnings.

Since the introduction of the revolutionary Treo 600, PALM has unveiled three completely new Treo platforms (i.e. 650, 700w, and 700p) running two different OS platforms, supporting 3G speeds, and spanning all major geographies and air interface standards. Later this year, PALM will unveil the Hollywood to target Europe with a GSM-based 3G smartphone in an attractive, antenna-less, Windows Mobile-powered package. PALM will also start selling the Low Rider to extend the appeal of the Treo's brand, power, and ease-of-use to the mass market. By contrast, NOK took until now to introduce the E61 messaging phone, and the MOTO Q was delayed numerous times in its two-year saga.

254% RISE IN PALM'S SHARE PRICE SINCE '04

Despite continued warnings by pundits that PALM would be unable to compete effectively, the period starting in Jan '04 has been one of unprecedented improvement in PALM's financial performance and extraordinary returns for shareholders.

In particular:

1. Sales will have increased to over $405M in May '06 from $271M
   in November '03.
2. Cash from operations improved to $76.1M in February '06 from a
   burn of $23.8M in November '03.
3. PALM's share price has grown 254% to $18.11 yesterday from
   $5.12 in January '04.

Relative to yesterday's closing price, PALM trades at a valuation completely disconnected from reality. Adjusting for PALM's $537m in cash and investments and $60m in land for sale, PALM's FY07 P/E is just 6.2x (i.e. using cash taxes/8.8x using GAAP taxes). PALM is trading at a significant discount to peers. For instance, RIMM is trading at 19.5x the FY07 EPS consensus. Sagio believes there is no logical justification for the wide divergence in valuations.

The recent drop in price (down 24.5% since the $24 peak on April 6) has created a unique opportunity for investors. Sagio expects a string of positive catalysts to boost the company's stock price through out the remainder of the year:

1. Q4Y06 earnings call in June - Sagio believes that PALM will offer
   FY07 top-line guidance ahead of the 16.3% growth consensus
   expectations.

2. The launch of the Hollywood in CY3Q06 - this antenna-less, 3G,
   Windows-powered smartphone will allow PALM to significantly grow
   its unit shipments by finally offering a compelling European phone.

3. The announcement of major European carrier partnerships - the
   launch of the Hollywood will be an event ala 700w at Verizon
   Wireless with Microsoft and PALM. Sagio believes that Vodafone will
   become the Hollywood's first strategic carrier distributor.

4. The launch of the Low Rider in CY3Q06/CY4Q06 - This launch will
   allow PALM to break into the mass-market with a price point around
   $200, reaching a broad swath of the consumer market while squashing
   those critics who argue that price competition will lead PALM's
   downfall.

5. Strong May, August, and November earnings reports - Sagio believes
   that PALM will beat consensus estimates and guide above
   expectations for the August quarter. Moreover, success of the 700p
   at Sprint and Verizon, the launch of the Hollywood in Europe, and
   the introduction of a North American Hollywood in late '06 could
   add significant upside relative to current expectations.

PALM's strong '06 start should only get better as new devices help PALM to significantly expand volumes. Sagio believes that the 700p will be as, if not more popular, than the 700w due to the superiority of the LCD resolution and the ease-of-use of the PALM OS. Furthermore, as the Hollywood starts to move through the carrier distribution network and the Low Rider breaks into the consumer mass market, PALM's unit shipments could expand significantly above current levels. Furthermore, Sagio expects ultra-thin Treos to appear in 2007, allowing PALM to capture the fashion-conscious buyer.

"We believe that the expansion of PALM's product line will allow the company to not only show very strong top-line growth but also enjoy expanding margins. We believe that PALM's revenues will grow between 30% and 34% in '07 and a further 22% in '08, after growing 26% in '06. Operating margins should jump from 8.2% in FY06 to 11.3% in '07 and 13.1% in '08. Needless to say, we believe that a forward P/E of only 13x or less is unreasonable given our expectations for PALM's growth profile," Gualtiero Giori, Investment Manager at Sagio Asset Investment.

At Sagio, fundamental research should be the only variable that counts in the investment process. The internal research report located later today at www.sagioinvest.com is not intended to offer investment advice or to recommend any shares. Sagio already own 6.3% of the company. As investors, Sagio would like to have access to better and more informed research from all its counterparties and as such are willing to make the first step in providing this type of research.

ABOUT SAGIO:

Headquartered in Geneva (Switzerland), Sagio is an investment adviser specialized in alternative investments. Sagio manages three funds (Sniper, Longview and Titanium) and managed accounts for an international clientele. They seek above average gains (both capital appreciation and current income) by employing a value-oriented, "bottom up" approach to investing in event-driven financial instruments perceived to be inefficiently priced as a result of business, financial or legal uncertainties. Sagio's trading approach also applies principles of cognitive and evolutionary psychology to financial market behavior. It can be found at www.sagioinvest.com

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