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Palm sales drop 47 percent on weaker consumer demand

Palm Inc, the biggest maker of handheld computers, had a fiscal first-quarter loss on slack demand. The company said it may have a second-quarter loss, and sales may lag forecasts by more than US$100 million.

The loss in the period ended Aug. 31 was US$32.4 million, or US$0.06 a share, compared with net income of US$17.3 million, or US$0.03, in the year-earlier period, Palm said. Sales declined 47 percent to US$214 million from US$401 million.

Palm may not get an expected boost in the holiday season, causing sales to miss forecasts, Chief Financial Officer Judy Bruner said. Demand for Palm's electronic organizers has dropped as the economy slows, leading the company to slash prices to clear out excess inventory. Palm delayed a new wireless product and canceled projects it was developing with mobile-phone makers.

"This quarter's going to be brutal," said Paul Coster, an analyst with J.P. Morgan, who rates Palm "market perform" and doesn't own the shares. "It doesn't look like things will get better much faster."

Sales for the current quarter will range from little changed to an increase of less than 30 percent from the first quarter, or US$214 million to US$278 million, Bruner said.

Palm was expected to break even in the second quarter on sales of US$422 million, the average estimates in an analyst survey by Thomson Financial/First Call.

"We are still striving for profitability," Chief Executive Carl Yankowski said. "However, we now do not expect to obtain this goal in the second quarter." He declined to predict when Palm would have profit again.

The company's shares fell US$0.36 to US$2.15 in regular US trading before the report. They rose as high as US$2.30 after the release. The stock has dropped 96 percent in the past year.

"The terrorist attacks in the US last week add much further doubt and uncertainty," Bruner said. "We are much more cautious."

Excluding costs related to restructuring, mergers and other items, Palm said it would have had a loss of US$38.7 million, or US$0.07 a share, in the recent quarter. On that basis, which doesn't comply with generally accepted accounting principles, the company was forecast to lose US$0.09, the average estimate of analysts polled by Thomson Financial/First Call. Sales were expected to be $206.1 million.

"We could be in for a bit of a rough ride going into the holiday season," said Michael Kim, an analyst with Robertson Stephens, who rates the shares "market perform" and doesn't own them.

Palm won't introduce a new computer with wireless Internet access prior to the holiday season as planned, Yankowski said. The company also canceled products in development with cell-phone makers Motorola Inc. and Nokia Oyj.

"Ideas that had strong currency a year ago, even months ago, can no longer be justified," Yankowski said.

The company has seen customers choose its lower-priced devices in greater numbers than expected, resulting in less revenue, said Bruner. She also noted "particular weakness" in demand in Europe. Sales in August, which Palm expected to rise, fell 15 percent from a year ago, Bruner said.

Inventory is at the high end of the four-week-to-eight week range the company prefers, she said.

Palm today postponed its PalmSource developer conference scheduled to start Oct. 23, saying it would be rescheduled.
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