Palm Warns of Loss, Plans Workforce Cut

By Craig Stedman, Computerworld |  Hardware

Handheld computer maker Palm Inc. last week disclosed plans to cut its workforce by 13% and make other cutbacks in response to a reduced revenue outlook and an expected fiscal fourth-quarter loss.

The Santa Clara, Calif.-based company said about 250 full-time employees and contract workers will be let go. Palm, which currently has about 1,900 people on its payroll, indicated that additional layoffs are likely after the scheduled June completion of its acquisition of Extended Systems Inc. in Boise, Idaho.

Palm announced the planned cutbacks when it reported financial results for its third quarter ended March 2, with revenue increasing 73% from the same period a year earlier to $470.8 million. But the company said fourth-quarter revenue is expected to total only $300 million to $315 million, down from $350 million a year earlier.

Like other technology vendors, Palm is feeling the effects of the softening U.S. economy. That has resulted in a reduction in orders, said Palm CEO Carl Yankowski. He added that the company is also being affected by a product transition to its new m500 and m509 devices, which aren't due for volume shipment until the last month of the fourth quarter.

The revenue crunch is expected to lead to a net loss of about $36 million in the fourth quarter ending in early June. That follows a $1.9 million third-quarter net loss, although Palm said that was due largely to costs stemming from acquisitions. Without those costs, the company would have had a net income of $9.3 million.

Palm had said in its fiscal second-quarter filing to the Securities and Exchange Commission that it planned "to continue to hire a significant number of employees this year." But because of the reduced business outlook, the company last week said it's now "adjusting its business model and focusing on balance-sheet management."

Palm said it's trying to reduce expenses by 10% to 15% from their expected fourth-quarter levels. In addition to the layoffs, the company is postponing construction of a planned new headquarters in San Jose that was expected to cost $460 million over a seven-year period. Palm also said that it's re-evaluating its overall real estate plans.

Alan Reiter, an analyst at Wireless Internet and Mobile Computing in Chevy Chase, Md., said Palm's planned layoffs fit the pattern of workforce cuts announced recently by other wireless communications vendors.

"A lot of these companies announcing layoffs were counting not only on the growth of the economy, but [also on] the growth of enhanced services, like wireless computing with [the] Wireless Application Protocol," Reiter said.

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