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Handspring to miss sales estimates

The handheld computer maker warns that its fourth-quarter sales will check at roughly half the $121.3 million it told shareholders to expect back in early May.

Handheld computer maker Handspring warned after the bell Thursday that its fourth-quarter sales will check in between $60 million and $65 million, roughly half the $121.3 million it told shareholders to expect back in early May.

The warning is just the latest casualty reported from its ongoing price war with archrival Palm, which also warned that it would miss analysts' sales estimates by a similar margin in its current quarter.

Both companies have dramatically lowered prices in recent months in an attempt to unload inventory in the United States and abroad, an oversupply that analysts predict will take at least three months to correct. Palm--but not Handspring--has also cut its work force recently in an attempt to cut costs and reach profitability.

"Right now if I were Handspring, I'd seriously consider just taking all the unsold inventory and throwing it in a trash compactor," said Reik Read, an analyst at Robert W. Baird. "I'm shocked by the size of the warning, but it tells you all you need to know about the severity of both pricing pressures and inventory issues these guys are facing."

Wall Street got an early signal that Handspring would likely be issuing a profit warning Thursday morning when it announced it would begin offering a $100 rebate on its $399 Visor Edge with a trade-in of almost any PDA (personal digital assistant) from it or any of its competitors.

Palm cut its wirelessly enabled Palm VIIx from $449 at the beginning of the year to $199, which can be rebated even further to $99 with a one-year subscription to its wireless Internet service. It also cut prices on its Palm Vx from $349 to $299 and trimmed its low-end m100 from $149 to $129.

To keep pace, Handspring cut the price of its Visor Deluxe from $249 to $199 despite earlier comments that it would not have to lower costs. Handspring is also offering a $50 rebate on its $299 Visor Platinum.

"It's really ugly out there," Read said. "In the long run, this is a market that can support two or more companies, but for now this is something that both companies are just going to have to fight through."

During a May 3 presentation at a Merrill Lynch conference in New York, Handspring Chief Executive Donna Dubinsky said it was too early in the quarter to tell whether Palm's price cuts would hurt her company and reiterated the company's sales forecast of between $130 million and $136 million in the quarter.

"We are certainly seeing some softness, but we wouldn't characterize it as a precipitous decline," Dubinsky said.

Last quarter, Handspring posted a net loss of $6.7 million, or 6 cents per share, on sales of $123.8 million.

Handspring shares, which peaked at $99.31 in October, fell 10 cents to close at $8.90 in the regular trading session before falling to $8.05 in after-hours trading.

Palm shares rose 27 cents to $6.26 before falling to $6.16 in after-hours trading.