Palm shares dive on grim outlook

Palm shares dropped 35 percent in after-hours trading after the handheld computing giant announced cost-cutting measures, including layoffs

Handheld maker Palm reported quarterly earnings Tuesday that narrowly beat analyst expectations, but also offered a grim outlook for its current quarter and announced layoffs.

The forecast hit Palm's stock hard. Palm shares closed up $1.06, or 7 percent, at $15.50 on Tuesday. But in after-hours trading, the stock plunged 35 percent to $10.05.

Palm reported a profit of $9.3m (about £6.3m), or 2 cents per share, on revenue of $470.8m, excluding amortisation and goodwill charges. Analysts had been expecting a profit of 1 cent per share on revenue of about $473m in Palm's third fiscal quarter, which ended 2 March.

In the same quarter last year, the company reported a profit of $15.8m, or 3 cents per share, excluding charges.

Despite beating estimates, Palm indicated that demand is dropping off. Revenue is expected to come in at $300m to $315m for the current quarter, the company's fiscal fourth quarter. Palm reported revenue of $350m for its fourth quarter last year.

Palm expects to report a loss of 8 cents per share for the current quarter. Cost-cutting measures are being imposed at 10 percent to 15 percent of operating costs.

The company will reduce its work force by 250 employees and contract workers total. It will also postpone construction on its new corporate headquarters in San Jose, California. Work was scheduled to begin this month.

On a conference call, Palm Chief Financial Officer Judy Bruner said the company is looking to trim about 10 to 15 percent of the company's work force. The company has about 1,500 permanent workers and 400 temporary workers, Bruner said. The cuts are planned to be made by the end of April, Bruner said.

More layoffs may also be coming. "Further reductions are expected associated with the acquisition of Extended Systems," chief executive Carl Yankowski said on the conference call. That deal, announced earlier this month, is expected to close in June.

Palm has grown quickly. As of June 2000, the company had 951 employees, according to a filing with the Securities and Exchange Commission.

Palm spokeswoman Marlene Somsak said the company has not decided how many of the workers will be staff and how many will be contract employees. The company did not say which parts of the company will be affected by the cuts. Employees learned of the news in the press release Tuesday afternoon.

"Palm has recently begun to feel the effects of the deteriorating macroeconomic environment," Yankowski said in a statement, "resulting in a reduced incoming order rate amid signs of what appears to be a sector slowdown. Based on this, we believe that demand is approximately flat to the fourth quarter a year ago."

Including special charges, the company earned $1.9m, or just less than 1 cent per share, in its fiscal third quarter.

The leader in the personal digital assistant market reported a 112 percent increase in the number of handhelds sold in its third quarter, compared with the same quarter last year. This brings to 13 million the total number of handhelds the company has sold.

Palm's news also pulled down the shares of other handheld makers.

After gaining $3.38 to close at $16.19 in regular trading, shares of Handspring tumbled to $11.94, or 26 percent, in after-hours trading. Shares of Research in Motion, maker of the popular BlackBerry pager, dropped 22 cents to $24.68 in regular trading and then fell another $4.38, or 18 percent, in after-hours trading.'s Ian Fried contributed to this report.

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