Palm Cuts in Half Its Sales Outlook

SAN FRANCISCO — In the latest sign that the technology slump has yet to hit bottom, Palm Inc., maker of the most widely used hand-held computers, slashed by about half its sales estimates for the current quarter.

Revenue for the quarter ending this month will be $140 million to $160 million, instead of the $300 million to $315 million the company forecast in March, Palm said Thursday.

“It’s pretty shocking,” said Rob Sanderson, an analyst with Banc of America Securities. “Even the extent of the revisions downward . . . in the last conference call [six weeks ago] was a shock. Now cutting that in half--I’m absolutely amazed.”

Analysts view the company’s sudden nose dive in sales as exceptional.

“I’ve never seen anything this bad, never a six-month swing like this with any company,” said Tom Sepenzis, an analyst with CIBC World Markets.

Palm now projects an operating loss of $170 million to $190 million in the current quarter, compared with previous loss estimates of $80 million to $85 million. The company will take a $300-million charge this quarter for excess inventory--both components and finished devices.

Palm also faces a cash crunch. The company told analysts Thursday that it might need to raise funds in the next six months.

“That’s mind-boggling, considering that they had about $600 million on their balance sheet . . . as of February,” Sanderson said.

Shares of the Santa Clara, Calif.-based company fell 6 cents to $7.05 in regular Nasdaq trading Thursday. The announcement was made after the close of trading. In after-hours trading, Palm shares plunged to $5.54.

Palm’s shares have tumbled more than 90% since November as hotly anticipated new versions of Palm organizers--the m500, which sells for $400, and the m505, which has a color screen and sells for $450--were delayed.

“The Palm faithful out there all have known for so long about the 500 [model] and its capacities--which really improve on older models. That really killed the demand for the existing” models, Sanderson said.

Last week Palm slashed prices on its VIIx model, which includes a wireless modem, to $99 after a $100 rebate. Although that deal requires the customer to buy a year’s worth of Internet access for at least $24.99 per month, it’s still a dramatic price cut compared with prices of several hundred dollars for the same model only a few months earlier.

The company faces increasing competition and pricing pressure from competitors such as Handspring Inc., Compaq Computer Corp., Hewlett-Packard Co. and Sony Corp. Some analysts say the hand-held computer market could soon resemble the market for typical consumer electronics appliances--generic, mass-produced products that carry very low profit margins.

One solution to that kind of business is to build customized hand-held computers and software for corporations.

Palm had intended to expand that part of its business with the purchase of Extended Systems--a software company that specializes in permitting corporate software applications built for the desktop PC to operate on hand-held units. But Palm also announced Thursday that it canceled the planned $264-million purchase of Extended.

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Bloomberg News was used in compiling this report.