Palm, which warned it would announce a larger than expected financial loss, at the beginning of the December, delivered on that promise yesterday, when it outlined its second unprofitable quarter in a row.

The company lost $9.6 million (9 cents a share) during its second fiscal quarter, which ended November 30th. A year earlier, it reported profits of $12.7 million.

Total revenue hit $349.6 million compared to $392.9 million a year earlier.

On the bright side, smartphone sell through grew by 11 percent from the same period in 2006, hitting 686,000 units and earning Palm $282.4 million.

Today, Palm smartphones include Windows Mobile and Palm OS-run Treos in addition to the entry-level, Palm OS Centro, which has received good reviews and done well in its first few months of availability. Palm released Centro on the heels of the disaster that was the axing of the laptop-like Foleo Mobile Companion on the eve of that device’s supposed release.

PDA sales took another dive downward for Palm; dropping by 35 percent from 2006 to 323,000 units, for earnings of $67.2 million. The overall market for mobile devices without cellular-wireless connectivity in general has been down considerably for all vendors the last few years. So Palm isn't so unique on that count.

According to Palm president and CEO Ed Colligan, the company is suffering through a period of transition. "We are transforming Palm to exploit the market opportunity and instilling operational rigor throughout the organization,” Colligan said in a statement. "We've taken actions to align our expenses to the current operating environment and are focusing on core initiatives that will have the greatest impact on achieving our long-term success."

With that in mind, Palm recently cut costs by laying off about 10 percent of its staff and reassigning others.

Palm has also received an influx of much needed cash, $325 million, through a partial buyout by private-equity firm Elevation Partners, which gained a 27 percent stake in the company.

And, perhaps, most importantly, it'll be lead in its transformation by a new Chairman, Jon Rubinstein, who is a former senior vice president of hardware engineering and head of the iPod division at Apple. He is also now Palm head of product development.

As part of its plan to move forward, Palm said it would gear its Windows Mobile products towards business customers and Palm OS devices to consumers. Recent smartphones for consumers, such as the Treo 680 and Centro, both Palm patform-run, bear this strategy out.

It also plans to introduce products that don't rely so much on the design of the Treo, which has changed little over the years.

"We recognize we need to build a larger array of offerings," according Colligan said during a conference call yesterday. "We’re working on absolutely breakthrough designs, breakthrough user experience, breakthrough UI and other functionality on next generation systems, so we’re not stopping at anything short of revolutionary and fantastic design."

He offered no specifics on what these devices might look like or how the eventual introduction of Linux-run smartphone would affect Palm's platform and hardware strategies.

Whatever happens long term, one thing is almost certain: Palm's fortunate won't improve anytime soon.

Palm is stuck behind market leader RIM BlackBerry and surprise number two, Apple with the iPhone. Apple has quickly grabbed 27 percent share of the North American market in less than six months, reports Canalys.

As a platform, the iPhone, one device, even beats Microsoft Windows Mobile OS, which, at number two, is available in numerous smartphones and has been around for years.

So, for its current quarter, Palm predicts even worse financials than the last. It expects to lose between 31 and 33 cents per share on earnings of $310 million and $320 million.