Palm to trim up to 20 percent of staff

The handheld giant announces that it will reduce its payroll by 250 jobs but reaffirms that it will meet estimates for the current quarter.

3 min read
Handheld maker Palm said Wednesday that it will cut another 250 jobs from its payroll but added that it is on track to post quarterly financial results within the range of previous estimates.

As first reported by CNET News.com, the layoffs are the company's third round of large-scale cuts this year.

Although the layoffs could help the company cut $15 million to $20 million in expenses annually, financial analysts say, the bigger news is the fact that Palm reaffirmed its estimates for the quarter.

Palm said it expects revenue for its fiscal second quarter, which ends Friday, to be between $250 million and $280 million--which it said is at the high end of its prior guidance. Excluding charges and goodwill amortization, the company expects to meet Wall Street estimates of a loss of 7 cents per share.

Because of the sluggish economy, some analysts have been expecting Palm to report less than $220 million in revenue for the quarter. However, good holiday-related sales so far and an improving inventory situation are brightening Palm's outlook.

"All (the handheld makers) did pretty well in the past two weeks, with Palm selling more than Handspring or Compaq," said Thomas Sepenzis, an analyst with CIBC World Markets, who added that the recovery in demand could continue through the next quarter. Sepenzis earlier predicted Palm would hit revenue of $219 million for the quarter.

As for the layoffs, Palm is actually cutting more than 250 workers and contractors in the latest round but expects the net job reductions to total roughly 250 after hiring additional workers in key areas such as handheld sales to businesses.

Spokeswoman Marlene Somsak said the cuts were made across the company. Finance, information technology and human resources were among the departments affected by the cuts, she said.

After the latest cuts, which amount to between 15 percent and 20 percent of its staff, Palm expects to have a work force of about 1,125 employees and 125 contractors.

"We are pleased to report an improvement in our revenue outlook," Palm Chairman and interim CEO Eric Benhamou said in a statement. "Palm is executing better than a few months ago in both of our core businesses. And we are now in a position to further reduce our cost structure. Together, these favorable factors will accelerate our return to profitability."

Overall, analysts say, Palm helped itself by getting rid of older, undesirable inventory. In addition, the company has been aided by a recent rebound in demand following a drop after the Sept. 11 terror attacks on the United States. Palm's sales are roughly 40 percent lower than last year in terms of revenue but higher than in the recent past.

Palm "did not cut prices, so it is demand that is picking up," said William Crawford, an analyst at US Bancorp Piper Jaffray. "Demand on a marginal basis is picking up month over month."

Palm Chief Financial Officer Judy Bruner said in an interview that the holiday season is off to a good start, but added that much will depend on how well the products that Palm has already shipped to stores sell to customers in the next few weeks.

Bruner said Palm started to see an improvement in its sales beginning early last month and said sales this month have continued to improve.

"It's been doing well compared to October," Bruner said of the rate customers have been buying from stores, a metric known in retail circles as sell-through.

Palm began the year as a high-flying company that could not keep up with demand. But the handheld giant was beset by a drop in consumer spending and a botched product launch that led to a glut of products and falling prices.

The company has been trying to turn the situation around, bringing in new management and deciding to split itself into two companies: one that builds and sells handhelds and another that develops and licenses the Palm operating system. Somsak said Palm is on track to create a separate subsidiary for the OS business by the end of the year.

The latest layoffs follow the departure at the beginning of the month of CEO Carl Yankowski.

Palm has also been scaling back in various product areas. On Monday, the company notified customers of its MyPalm portal of plans to discontinue Web-based services such as personal calendars and address books.

Earlier this month, the company also trimmed more than a dozen workers from its offices in Cambridge, Mass.