Sat, Jun 01, 2002 page21

• Palm expecting to post a Q4 loss as sales decline

  HAND-HELDS Sales at Palm and Handspring have been slow because consumers see little reason to buy new personal digital assistants

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  Palm Inc, the largest maker of hand-held computers, said it will have a loss in the fourth quarter as consumers spent less than forecast on its electronic organizers. The shares fell as much as 25 percent.

  Revenue will be about US$230 million in the period ending tomorrow, less than the US$290 million to US$300 million Palm estimated in March, the Santa Clara, California-based company said in a statement. Palm had expected to break even in the quarter.

  Sales of devices made by Palm and rivals such as Handspring Inc have slowed since more than doubling in 2000 because consumers see little reason to buy new models of the so-called personal digital assistants, analysts say. Demand dropped last year as the US economy slipped into recession, and Palm had expected sales to pick up as the economy started to recover.

  "Except for color models, there hasn't been a huge reason to upgrade," said Tom Carpenter, an analyst at Hilliard Lyons who has a "hold" rating on the shares. "The glory days of the traditional PDA market are over."

  Palm shares, which traded as high as US$165 in March 2000, fell as much as US$0.56 to US$1.65 after the company lowered its forecast. The stock fell US$0.11 to US$2.21 during regular US trading hours. The shares were among the worst performers in the Standard & Poor's 500 Index for the 12 months that ended in March.

  Sales of Palm's hand-held computers declined at a time when Father's Day and college and high-school graduation ceremonies were expected to fuel buying, Chief Financial Officer Judy Bruner said during a conference call.

  The company doesn't expect sales to re.cover during the next three months. Palm anticipates first-quarter revenue of US$175 million to US$185 million and a loss, excluding certain costs, of US$40 million to US$45 million, Bruner said. Palm expects to return to profitability in the second quarter, which ends in November.

  "Palm will become profitable later this year," said Eric Benhamou, Palm's chairman and chief executive.

  Analyst say consumers have postponed purchases as they wait for new models. Palm will begin selling computers with a faster processor this fall to compete with higher-priced machines that use Microsoft Corp's operating system and are favored by many business customers.

  Shipments of such models made by Compaq Computer Corp rose 18 percent during the first three months of 2002, according to market researcher IDC. Industry shipments slipped 12 percent.

  "It's a really tough time," said James Faucette, an analyst with Pacific Crest Securities Inc. "They need to come out with some killer new products, and they're not here yet." Analysts polled by Thomson First Call on average had forecast a loss of US$0.01 a share in the current period. In last year's fourth quarter, the company had a net loss of US$392 million, or US$0.69, on sales of US$165.3 million.

  Palm has reported losses for the past four consecutive quarters, excluding certain gains and expenses. The company has fired workers to cut costs and announced plans to break off its software division, which makes the Palm operating system, into a separate company to avoid competing with its own customers.

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