While analysts didn't see any good news in sight for the leading handheld maker, they were more optimistic about prospects for Handspring and Research In Motion.
Shares in Palm, which has a commanding--but shrinking--share of the market for handheld organizers, fell $2, or 28 percent, to $5.05, hitting a new 52-week low.
Handspring, which makes the competing Visor handheld device, fell $1.69, or 16 percent, to $8.69. Research In Motion, maker of BlackBerry two-way pagers, gained $1.77, or 5 percent, to $36.12 as analysts said the Palm flap may help RIM.
Palm issued a double dose of bad news after the bell Thursday. It warned that revenue in its current quarter will come in between $140 million and $160 million, just half its forecast, which had already been drastically lowered. Palm is also calling off its deal to acquire Extended Systems.
There already were signs of trouble afoot after Palm said its U.S. retail sales were slipping and Lehman Brothers downgraded Handspring, saying it could be hurt by pricing pressures.
Analysts on Friday predicted a gloomy future for Palm.
"We see no catalysts for the stock, and our model forecasts losses for the next few years," said Morgan Stanley analyst Gillian Munson, who lowered her rating to "neutral" from "outperform."
"Company viability is a serious concern, given the cash-burn rate," the analyst added, saying she expects Palm to run out of money in the second fiscal quarter.
J.P. Morgan analyst Paul Coster downgraded Palm to "market performer" from "long-term buy" and dropped his price target to $6 from $10. "We believe that the company will take at least two quarters to recover momentum and credibility with investors," Coster wrote in a research note.
He said Palm's decision to cancel its Extended Systems acquisition was a "blow to (its) stated strategy for selling into the enterprise" and a major strategic concern.
Lehman Brothers analyst Joseph To was more optimistic, maintaining his "strong buy" rating. But the analyst also raised red flags about the company's cash reserves.
"Cash could become an issue going forward as the company incurs these extraordinary charges ($300 million for excess inventory, and other charges for layoffs) and loses money from operations."
At the end of last quarter, Palm reported about $600 million in cash and equivalents, half of which the company should burn through in its fourth quarter, To predicted.
Wall Street was slightly more upbeat on competitor Handspring, though many analysts lowered estimates for the company.
"While we believe Handspring has clearly been executing its product forecasts/cycles better than Palm, soft handheld appliance demand makes it look tough for Handspring to meet its $130 million-plus targets," said ABN AMRO analyst Robert Cihra. The analyst cut his June quarter estimate to $115 million in revenue from $128 million.
"Handspring is not in the same position as Palm," wrote CIBC Oppenheimer analyst Thomas Sepenzis, who downgraded the stock to "buy" from "strong buy" but did not change estimates. The analyst said Handspring's inventory problems aren't as severe, and the company is dealing with the situation well.
Lehman's To also dropped estimates for Handspring. "We have a hard time believing that Palm, which is being affected by user demand and macroeconomic issues, will report a 65 percent to 70 percent sequential decline in revenues while Handspring will remain unaffected," To wrote.
Research In Motion still got kudos from analysts.
"We would be a buyer of (RIM) shares on weakness," said Goldman Sachs analyst Rajiv Das. Palm's news coupled with Aether Systems' $28 million inventory write-down last week "will create negative sentiment" toward RIM, the analyst predicted. But the company is still expected to report results in line with estimates in its May quarter, and the launch of European service should give a spark to buying near term, he said. Das reiterated his "market outperformer" rating Friday.
Credit Suisse First Boston analyst Marc Cabi also maintained his rating--a "buy"--and said "BlackBerries are ripening on the vine for a fall harvest." In other words, the company's prospects look good in the long term despite short-term risks from inventory buildups at Aether and Motient, Cabi said.