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Handspring narrows loss

The handheld maker chips away at losses but still sees a drop in second-quarter revenue of more than $22 million.

Handheld device maker Handspring narrowed its second-quarter losses but reported a drop in revenue compared with the same period a year ago.

The Mountain View, Calif.-based company reported that it had revenue of $47.8 million and a loss of $12.3 million, or 8 cents a share, for the second fiscal quarter 2003, ended Dec. 28, 2002. In the same period a year ago, the company had revenue of $70.5 million and a loss of $19.8 million, or 16 cents a share.

Analysts were expecting a loss of 7 cents per share, according to financial research firm First Call.

"While our long-term outlook remains positive, we see a number of challenges in the next quarter that make us cautious for our near-term business outlook," Handspring Chief Executive Donna Dubinsky said in a release.

The device manufacturer is in the middle of a business transition from making mainly personal organizers to making its line of Treo communicators, a combined cell phone and organizer. Handspring sold about 54,000 communicators in the second quarter, a 23 percent increase on the previous quarter.

Handspring said it will focus more on attracting business from larger customers, such as wireless cell phone carriers. In addition, it will change the kind of financial forecast it provides, giving business guidance--such as information on deals signed--instead of revenue ranges. This is because the company expects to see more volatility in its financial results since it will be targeting fewer--albeit larger--cellular carrier customers.

Handspring expects to sign up two more carriers by the end of the calendar year.

The company said that it has entered into a deal to restructure lease agreements on two buildings that it no longer occupies. In February 2001, Handspring entered into a 12-year, $350 million lease agreement for what would become its new campus. The issue was discussed during the company's first-quarter earnings results.

Under the restructured agreement, Handspring will pay $61.2 million to the landlord of the buildings--$15.3 million in the current quarter from unrestricted cash and $40.9 million from previously restricted cash. The company will also pay $5 million in lease payments over the next five years. In addition, the landlord will be given warrants on 10 million shares of Handspring stock--1 million of which will have a strike price of 1 cent, with the rest at market price.

Handspring will take a charge of $75 million to $80 million in the current quarter, to account for the restructuring of its lease agreement.

The company added that it expects to reduce expenses in 2003 through recent layoffs, product cost reductions and management of other operating expenses. It eliminated about 50 positions in second quarter, leaving the company with about 250 employees.

With the reduction in expenses, the company has lowered its break-even point and has set of goal of reaching profitability by the end of the calendar year. The company had about $53.7 million in cash and $12 million in short-term investments as of Dec. 28.

In after-hours trading, Handspring shares were down 17 cents, or about 15 percent, to 93 cents per share.