Palm stock nose-dives from $15.50 to $8.06

Weak demand blamed, but competitors report their business is good

March 29, 2001|By BLOOMBERG NEWS

SANTA CLARA, Calif. - Palm Inc.'s shares lost half their value yesterday after the company forecast a loss this quarter because its handheld computers are sitting in warehouses while it prepares new models to catch up with more-powerful devices from rivals.

The biggest maker of handheld computers, with about 50 percent of sales of such devices, is getting ready to bring out two new products to compete with new models from Handspring Inc. and Compaq Computer Corp. that are more powerful than Palm's popular Palm Vx.

Late Tuesday, Chief Executive Officer Carl Yankowski blamed Palm's woes on weak demand and "economic turbulence" that he said appeared to be hurting rivals as well. Yet Handspring says it expects sales to meet its forecasts, and Compaq says it can't fill all orders for its iPaq Pocket PC because the company can make only about 100,000 a month.

Palm shares fell $7.44 yesterday, or 48 percent, to close at $8.06 after sliding to a record low of $7.94. About 133.7 million shares changed hands, the second-biggest volume in U.S. markets. Palm's market value fell by $4.28 billion at the day's low.

The former 3Com Corp. unit traded as high as $165 in its first day of trading in March 2000. That day, Palm had a market value of about $53 billion, more than Ford Motor Co.'s $50 billion. Palm's market value has tumbled to $4.6 billion.

Compaq's iPaq runs on Windows CE software from Microsoft Corp., which lets the device play music and videos. Handspring's Visor organizers run on Palm's software, yet they also can work with expansion cartridges for taking pictures, listening to music and making phone calls. Handspring introduced its thinnest product, Visor Edge, this month to compete with Palm Vx.

Palm is getting ready to introduce its m500 and m505 models, which will sell for $400 and $450 and work with an advanced expansion card. Some Palm enthusiasts delayed purchases of new handheld PCs until April or May, when the two new devices are scheduled for release, analysts said.

The company is now saddled with bloated inventory. The value of its stockpile in the quarter ended March 2 rose to $102.5 million from $24 million and could rise an additional $200 million this quarter, Chief Financial Officer Judy Bruner said yesterday.

Palm reported a loss for the third quarter, which ended March , of $1.9 million, or break-even on a per-share basis, compared to profit of $11 million, or 2 cents a share, a year ago. Sales rose a less-than-expected 73 percent from $272.3 million to $470.8 million.

The company expects a loss of 8 cents a share on sales of $300 million to $315 million in its fourth quarter, which ends in May. It was expected to earn 3 cents on sales of $572.6 million.

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