Excluding costs related to deferred compensation to executives, Handspring lost $8 million, or 8 cents per share, on sales of $70.5 million during the quarter that ended Sept. 30.
Analysts had predicted that Handspring would post a loss of 12 cents per share, according to First Call/Thomson Financial. Handspring was expected to report sales of around $61 million, according to two recent research reports from brokerage firms.
Including the compensation charges, Handspring lost $16.4 million, or 17 cents per share.
In the prior quarter, Handspring lost $5.9 million, or 13 cents per share, excluding charges, on revenue of $51.8 million. The company went public in June.
"While other product sectors seem to be experiencing stagnating or slowing growth, we continue to see a robust market for handheld computers," chief executive Donna Dubinsky said in a conference call with analysts.
Handspring also improved its outlook for the current quarter and fiscal year. For the October-December quarter, the company now sees sales in the range of $95 million to $105 million, ahead of its prior guidance, chief financial officer Bernard Whitney told analysts.
For the company's fiscal year, which ends in June, Handspring expects its sales to come in at $385 million to $415 million, with a per-share loss in the range of 48 cents to 52 cents, excluding compensation charges. That figure is 9 cents to 10 cents better than the company's than previous estimates, Whitney said.
CIBC World Markets analyst Thomas Sepenzis noted that in addition to raising its outlook, Handspring added Solectron as a second contract manufacturer, which will ensure it can meet demand.
"They're doing everything right," Sepenzis said.
Handspring also plans to start selling at Target, a move that Dubinsky said will allow the company to "hit some people that don't stroll the halls of Fry's," referring to the Silicon Valley electronics chain popular with hardcore techies.
Though that crowd dominated the initial audience for handheld computers, Dubinsky said handhelds are reaching mainstream consumers now as they become the future of personal computing.
"If you look out five years or 10 years, I really can imagine absolute ubiquity," Dubinsky said in an interview. "People won't want to be without them."
Ahead of the earnings report, Handspring shares closed up 31 cents at $77.88, after trading as high as $85. In after-hours trading, the stock price dropped to $74.31, according to Island ECN.
Sepenzis said he could see nothing in Handspring's guidance that would send the stock lower, attributing the drop to profit-taking.
"Everyone gets pretty crazy expectations," Sepenzis said.
Shares of Handspring fell below $55 earlier this month amid concerns that Palm was regaining market share with its low-cost M100. However, shares have since gained back that loss.
According to market researcher NPD Intelect, Handspring accounted for 15.5 percent of retail handheld computer sales in August, down from 26 percent in July. Palm had 70 percent of the market in Auguest, up from 61.5 percent in July.
Dubinsky said she expects Handspring's market share to show somewhat of an improvement when September sales results are released.
Merrill Lynch analyst William Crawford said Handspring's results eased fears that Palm's M100 might be eating into Visor sales.
"As much as people may be worried if Handspring and Palm can play in the same sandbox, clearly they are able to," Crawford said.