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Palm begins handing out pink slips

The handheld giant begins making large-scale job cuts and--according to internal documents seen by CNET detailing other ways it will cut costs.

Handheld maker Palm began making large-scale job cuts Wednesday and, according to internal documents, has been detailing other ways it will cut costs.

Late last month, Palm said it would trim 10 percent to 15 percent of its workers and contractors amid a sharp downturn in demand.

Palm spokeswoman Marlene Somsak confirmed the company was in the process of notifying U.S. workers as of late Wednesday morning. The company plans to cut jobs further when it completes its acquisition of Extended Systems in June, she said, although the scope of those cuts has not been decided.

According to documents circulated to some Palm employees and seen by CNET, laid-off workers at the Santa Clara, Calif.-based company will continue to receive pay and benefits for 30 days. They will then receive severance of two months to four months, based on their job classification, as well as an additional week's pay for every year of employment.

The laid-off workers will have up to 90 days to exercise any vested stock options that are still above water after the company's recent stock slide, according to the documents. However, those workers will not be part of an options grant announced last month.

Somsak would not specify which departments are being hit particularly hard and said both contractors and permanent employees are affected.

"Every part of Palm has been looked at," Somsak said.

Before the cuts, the company had about 1,500 permanent workers and 400 temporary workers.

The layoffs come as Palm is facing a number of hurdles. In an internal PowerPoint presentation from late last month also seen by, Palm identified a number of factors for its current problems including a slowing economy, delayed product transitions, and internal processes that are "still immature."

Palm also detailed to employees the need for further cost cuts, urging them to spend the company's money as if it were their own and declaring that "cash is king."

The company stands to burn through nearly half its unrestricted cash this quarter, with an additional $200 million in inventory expected to pile up and an operating loss this quarter projected to be in the range of $80 million to $85 million.

Palm also told employees that it could lose market share as competitors introduce new products.

"Our customers have more choices in the handheld industry than ever before, which could result in lower market share in the future," Palm said in the PowerPoint presentation.

Among the cost cuts being implemented are changes to the company's travel policy, as well as tighter guidelines on items such as gym-membership reimbursement, cell phone bills, and off-site meetings.

Many of those cuts are already in place, Somsak said. For example, she said, the company is only providing catering for meetings more than two hours that occur either before 8 a.m. or during the lunch hour.

Somsak said the company is making the moves necessary to ensure the company's future.

"We certainly expect to come out of the slowdown a stronger and more competitive company."