PDA and software maker Palm (NASDAQ:PALM) announced earnings after market close yesterday, and the picture is still mixed for the best-known name in handhelds and their operating systems. Losses and cash burn continued, though revenues climbed 3% year over year and cash management improved.

Q1 revenues came in at $177.4 million against last year's $172.3 million, while GAAP EPS improved from ($8.93) a share to ($0.74). Gross margins of 35% increased sequentially from 33% and year over year from 31%.

Palm still burned through the cash -- which we know thanks to the company's excellent practice of providing the cash flow statement in its press release. It consumed $14.5 million in operations and capital expenditures -- and that's even with a $6 million benefit from positive changes in accounts receivable and accounts payable. Still, that cash burn run rate of $58 million isn't too worrisome in the near term against $266 million on hand, but it may deteriorate.

That's because Palm plans to spin off PalmSource -- its operating unit that develops and licenses the Palm operating system -- and acquire competitor Handspring (NASDAQ:HAND). Former Palm execs started Handspring, maker of the Treo, and are coming home as finances worsen: There's barely three quarters of cash left at its trailing-12-month burn. After the deal, the surviving manufacturer will be known as palmOne, Inc., the small "p" sure to confound financial writers and editors.

Shares vaulted almost 8% yesterday to close at $22.57, but after the earnings report pulled back as much as 4% after-hours and 6% this morning. Former parent 3Com (NASDAQ:COMS) spun off Palm in a March 2, 2000 IPO with a first day close of $1901.20. That's not a misprint but the adjusted price given Palm's 1:20 reverse split on Oct. 15, 2002. The stock hit bottom six days later to close at $10.33. It has since outpaced even the Nasdaq's more than 70% rise.

Senior Analyst Jeff Fischer once suggested Handspring as a good short in plenty o' time for our newsletter readers to make some money. He offered another intriguing idea recently in Tom Gardner's Hidden Gems. We offer stock selections hot and ready to eat in Hidden Gems,Stock Advisor, andIncome Investor.Get your free trial now!