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Palm faces delay as rivals bare fiscal souls

The health of the handheld market is coming into focus as three industry leaders converse with Wall Street and Palm announces delays in volume shipments of upcoming products.

The health of the handheld computer market--in question since Palm warned last month of slowing sales and rising inventories--is coming into focus this week as three industry leaders converse with Wall Street.

The big question is whether Palm's problems are more the result of self-inflicted wounds or a symptom of an overall slowdown in consumer and corporate spending.

Palm is answering some of these questions Tuesday and Wednesday at a meeting with analysts. Meanwhile, Research In Motion reports earnings Wednesday, and Handspring follows Thursday.

In a briefing Tuesday afternoon to kick off the meeting, Palm CEO Carl Yankowski cautioned that the company will launch its m500 and m505 handhelds on time this spring but said the products won't be available in large volumes until later than originally hoped.

"Volume shipments are going to be a few weeks later than we had planned," he said.

Yankowski also reiterated the problems of the economy, both in the United States and spreading to Europe. However, he acknowledged the company's issues go beyond the impact of the broader slowdown.

"We are not blaming the economy for everything," Yankowski said.

Palm's shares have been hit hardest since its earnings warning two weeks ago, but all of the once high-flying handheld makers have seen their stock prices slump this year amid concerns that the market won't grow nearly as fast as projected.

On the day of Palm's warning, Handspring said it was on track to meet revenue projections for the January-to-March quarter. But analysts fear that Mountain View, Calif.-based Handspring is unlikely to escape Palm's woes.

Even if Handspring does not have the same inventory problems as Palm, it could still become trapped if Santa Clara, Calif.-based Palm decides to cut prices on its handhelds.

"Given the high levels of inventory at Palm and in the channel, we believe there could be the potential for a price war come May, which would have a negative impact on both Palm and Handspring," Lehman Brothers analyst Joseph To wrote in a research note this week.

Analysts are expecting Handspring to report a loss of 6 cents a share on revenue of around $115 million--near the company's original guidance. However, several analysts expect Handspring to lower its outlook for the current quarter.

"We would be surprised if Handspring did not take down the (revenue projection) for the next few quarters," Merrill Lynch analyst Melanie Hollands wrote in a research note this week.

On Wednesday at Palm's analyst meeting in Santa Clara, Calif., Chief Financial Officer Judy Bruner will discuss the company's plans to deal with its inventory glut and other financial woes. But the company won't offer new financial guidance, Yankowski said.

Bruner will offer the first peek into Palm's business since it slashed its forecast when it reported earnings March 27. Analysts will also be watching what Palm has to say about its plans for future products and the company's declining cash position.

Canada's Research In Motion is less affected by the slowdown in consumer buying, but is more susceptible to cuts in technology spending in large corporations. Although analyst predictions that Palm and RIM were immune to any slowdown were wrong, Goldman Sachs analyst Vik Mehta said RIM is likely to offer a less dire outlook than Palm.

RIM "will probably lower guidance, but not by that much," Mehta said.

The company is expected to report earnings of 7 cents a share, with several analysts projecting revenue in the range of $75 million. Another key figure for the company is subscriber growth. Mehta projects that the subscriber base has grown to at least 165,000, up from about 120,000 in the previous quarter.

Mehta added that RIM has yet to see the additional revenue that will come as the company moves into the European market and adds support for Lotus Notes. The BlackBerry already supports Microsoft's Exchange e-mail. RIM should see the first fruits of its new efforts in the March-to-May quarter, Mehta said.

However, RIM is also likely to feel increased competition later this year when Palm introduces a wireless handheld that comes standard with two features that have made RIM's BlackBerry popular: always-on e-mail and instant notification of new messages.