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Palm hands in revenue warning

The handheld maker cites lower-than-anticipated sales in the United States of its high-end Tungsten devices as the reason for its revenue woes.

Palm on Monday warned of lower-than-expected sales for its third fiscal quarter.

The handheld maker said revenue for its quarter, which ended last month, will come in at $205 million to $210 million, compared with its previous expectation of $230 million to $250 million.

Palm blamed the revenue warning on lower-than-anticipated sales in the United States of its high-end Tungsten handhelds.

Adding to its woes, Palm--which cut about 19 percent of its work force in the quarter--said it expects to take additional charges of up to $2.7 million related to the settlement of two legal matters. The company did not offer specifics on the matters.

Palm, which has the largest share of the handheld market, suffered alongside the overall market during 2002. Worldwide shipments of handhelds declined by about 9 percent year over year to 12.1 million units during 2002, according to market researcher Gartner Dataquest. Palm shipments declined about 12 percent to 4.4 million in 2002, the research firm said.

Palm also said that demand for its low-priced and midrange handhelds met expectations in the United States and that sales were strong across the board in Europe. But the company said sales of its top-of-the-line Tungsten models didn't turn out as expected in the United States, even after it reduced the price of its Tungsten T model by 20 percent in early February.

The company, which blamed Tungsten's weak sales on the depressed state of the business market, said that the price cut helped to spur demand, but not enough to offset the weaker market.

"Economic uncertainty weighed more heavily than we originally anticipated on both the consumer and enterprise segments of the handheld industry," CEO Eric Benhamou said in a statement. "We continue to take aggressive actions to return to sustained profitability, and we remain committed to completing the transformation of Palm into two successful leadership companies in the handheld space."

Last week, Palm said it cut about 200 jobs over the quarter. Its PalmSource subsidiary, set to be spun off from Palm in the first half of this year, let go 18 percent of its employees earlier in February.

PalmSource on Monday added Samsung Electronics to its Palm OS Ready Program. The program allows chip companies to license components of the Palm OS so chipmakers can offer OS licensees more complete processor lines, saving licensees development time and helping them to get products to market faster. Samsung joins ATI Technologies, Intel, MediaQ, Motorola and Texas Instruments as participants in the program.

Samsung's S3C2410 chip with an ARM920T core for smart phones and handhelds passed Palm OS Ready certification and is now shipping.

Palm will take previously announced charges of $40 million to $45 million during the quarter, related to severance and real estate. It also intends to take a noncash charge of about $100 million to reduce the carrying value of 39 acres of land it owns in San Jose, Calif.

Palm reports earnings March 20.