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Will Palm lower its outlook?

With the handheld maker set to release quarterly earnings, analysts are wondering how the economic downturn is hitting the company.

With Palm set to release its quarterly earnings Tuesday afternoon, analysts are wondering how the economic downturn is hitting the handheld giant.

After market close, the No. 1 handheld maker will announce its financial results for its third fiscal quarter, which ended March 2.

Richard Gardner, an analyst at Salomon Smith Barney, wrote in a research note Monday that Palm's increasing focus on the low end of the handheld market and "deteriorating consumer confidence" may cause Palm to lower guidance for the current quarter and for fiscal year 2002.

Melanie Hollands, a Merrill Lynch analyst, concurred. "It is possible guidance could be cautious in light of economic conditions and recent softness in Palm-brand market share," she wrote in a research note Monday.

A consensus of analysts expects Palm to report earnings of 1 cent per share, according to First Call. For the same quarter last year, Palm reported a profit of 3 cents per share. Analysts expect the Santa Clara, Calif.-based company to report revenue of $473 million for the quarter, compared with $272 million in the same period last year.

Palm still controls about 60 percent of the U.S. retail market for handhelds. Handspring, its nearest competitor and a licensee of the Palm operating system, has just under 30 percent market share. Together, they dwarf all other competitors.

But analysts will take a "what have you done for me lately" attitude as they scrutinize the earnings report Tuesday. Palm, for example, has said it is looking to corporate markets and wireless technologies to expand its market.

Earlier this month, the handheld maker announced plans to acquire mobile data management company Extended Systems to address both the corporate and wireless markets. The acquisition will allow Palm to offer handheld services that can go behind corporate firewalls.

Palm also recently introduced the m500 and m505, going after the same consumers attracted to the slim design of the Palm V series. The new units offer expansion slots, and one has a color screen.

The company recently denied reports that it is scaling back forecasts for its market.