Sagging sales hit Handspring

update The handheld device maker posts a loss that is wider than analysts expected, as sales in the March quarter were less than half of those in the same quarter a year ago.

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update Handspring on Monday posted a loss that was wider than analysts had expected as sales in the March quarter were less than half of those in the same quarter a year ago.

Handspring also estimated it will see a further drop in sales in the current quarter and said it won't reach profitability as it had previously predicted.

For the third quarter, ended March 30, the handheld device maker said it lost $23.7 million, or 18 cents a share, on revenue of $59.7 million. In the same quarter a year ago, Handspring lost $27.2 million, or 26 cents per share, on revenue of 123.8 million.

The company said it now expects to lose somewhere between 9 cents per share and 13 cents per share, excluding amortization, on revenue of $47 million to $57 million. The company also predicts it will reach profitability in the October-to-December quarter.

Handspring now expects to lose 25 cents to 35 cents for the calendar year, on revenue of $290 million to $300 million.

Excluding amortization of deferred stock compensation and intangibles, Mountain View, Calif.-based Handspring would have had a loss of $19.2 million, or 14 cents a share. On that basis, analysts were expecting a loss of 12 cents per share, according to First Call.

Executives still sounded an optimistic note. "Although we continue to experience weakness in our organizer business, we are pleased with our entry into the communicator market," Handspring CEO Donna Dubinsky said in a statement.

Handspring said it shipped 47,000 Treos in the quarter, ahead of its internal projections and some analyst estimates. The company said it estimates 13,000 sold through to customers, with half of those in North America and the rest split between Europe and Asia. The company said that later Monday it will announce its entry into the Australian market.

Thomas Sepenzis, an analyst at investment bank CIBC World Markets, said in a note to clients Monday morning that he was expecting Handspring to report revenue of $63.8 million and a loss of 11 cents per share.

"While we expect the Treo to ship at least 30,000 units in the quarter, the company's legacy products have not been strong," Sepenzis said.

Sepenzis also said he would not be surprised if the company were to cut its estimates for the June quarter, given that last week BlackBerry pager maker Research In Motion cut its outlook for the current quarter and year.

Late Monday, Sepenzis cut his rating on the stock from "buy" to "hold", citing Handspring's loss of market share to Palm and Sony as well as slow adoption of Treo by consumers and the fact that next generation cell phone networks are coming on slower than planned.

"While the new PDA, the color Treo and the Sprint launch may help create an environment of upside to our estimates, we recommend caution," Sepenzis said in a note to clients.

Handspring executives told analysts on the conference call that the company is having a particularly tough time predicting how it will do this quarter as it expects to introduce several new products in this quarter, including a color version of the Treo, a color version that runs on Sprint PCS' network as well as a new type of handheld.

Dubinsky would not elaborate on the last product, except to say it fits with the company's strategy of moving toward communicator products and away from disconnected organizers.

The company said it ended the quarter with $159.4 million in cash and investments, of which $108.7 million was unrestricted.

"It's a difficult transition," said Banc of Amercia Securities analyst Rob Sanderson. "The Treo shipments were very strong versus what I was expecting. But obviously the PDA business is pretty horrible."

Sanderson said it looks like Handspring might have actually had negative margins on its handheld business.

He said the company is on the road to transitioning into a communications-focused company. However, the transition may take longer than Wall Street would like.

"The mood of the Street is very short-sighted right now," Sanderson said.