Palm Inc shares fell 28 percent to an all-time low closing price after the biggest maker of hand-held electronic organizers said fiscal fourth-quarter sales will be about half its reduced forecasts.
Palm dropped US$2 to US$5.05 and was the most-active stock in US trading on Friday as almost 124 million shares changed hands. The stock has fallen 82 percent this year, making it the worst performer in the Standard & Poor's 500 Index. Rival Handspring Inc fell US$1.69 to US$8.69, after touching a record low.
The company's new m500 device was delayed by a defect, and customers waited for that model instead of buying older versions, Chief Executive Carl Yankowski said Thursday. Palm already was struggling to boost sales by reducing prices to clear out inventory after slowing economic growth crimped demand. In March, Palm cut its fourth-quarter sales forecast and said it would have a loss.
"They did it to themselves. It was not a sudden softening in demand for hand-helds," said Needham & Co analyst Charles Wolf, who reiterated his "hold" rating on Palm. "I have no sympathy for them."
Palm's m500, which starts at US$399, and m505, which is priced at US$449 and has a color screen, work with expansion cards for storing photos, music and text. The devices are designed to compete with Handspring's Visor models. By contrast, Palm's cheapest model costs US$129.
Palm delayed shipping the m500s because they couldn't properly protect against static electricity, Yankowski said on a conference call.
"If we had executed flawlessly, we probably would have had significant market share gains," he said Thursday.
Investors such as Doug Johanson, principal at Vista Capital Partners Inc, which owns 25,000 Palm shares, are starting to lose faith in the ability of Palm's executives to accurately predict demand.
* Handspring lowered the price of its Visor Deluxe model to US$199 from US$249.
* Palm followed by lowering the price of its Palm VIIx model, which is capable of wireless Internet access, to US$199 from US$299.
* Palm said sales in the fourth quarter ending this month will be US$140 million to US$160 million, instead of the US$300 million to US$315 million forecast in March.
"I see a huge problem at management," Johanson said.
"Ultimately the scorecard is the stock price, so it doesn't look like Yankowski has done a very good job." Yankowski, 52, is a relative newcomer to Silicon Valley. He was CEO of sneaker-maker Reebok International Ltd's Reebok brand in Massachusetts for 14 months before joining Palm in December 1999.
Several analysts cut their rating on the company Friday. Morgan Stanley Dean Witter analyst Gillian Munson lowered her rating to "neutral" from "outperform." CIBC World Markets analyst Thomas Sepenzis cut his rating to "buy" from "strong buy." JP Morgan analyst Paul Coster reduced his rating to "market perform" from long-term "buy."
Palm has been slashing prices as it fights to compete with Handspring, which was started by Palm's founders, and other palmtop computer makers.
A week ago, Palm lowered by a third the price of its Palm VIIx model, which is capable of wireless Internet access, to US$199 from US$299, to entice buyers. The price reduction came after Handspring lowered the price of its Visor Deluxe model to US$199 from US$249.
Palm's lowered sales estimate and price cuts don't bode well for Handspring, said Banc of America Securities analyst Rob Sanderson, who has "market perform" ratings on both companies.
"I'm a little concerned about the pricing environment," Sanderson said.
Handspring spokesman Allen Bush Thursday declined to comment on whether the company will meet sales and earnings estimates because its quarter is only half over. When Palm cut its forecasts in March, the last week of Handspring's quarter, Handspring said sales of Visor organizers were on track to meet estimates.
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