Palm warns of lower-than-expected Q3 revenue

Palm Inc. issued a revenue warning for its third fiscal quarter Monday, saying it will miss revenue guidance delivered in December by up to US$40 million.

The company now expects to take in between $205 million to $210 million for the current quarter, down from guidance of $230 million to $250 million provided in its second-quarter earnings results. Palm blamed weak demand for high-end handhelds, especially the new Tungsten T personal digital assistant (PDA) introduced last October.

Palm expected sales of the new Tungsten in the U.S. to be higher, and price cuts last month did not help to stir enough interest in the product, the company said.

The Tungsten W was introduced last week along with data services from AT&T Wireless Services Inc. That high-end PDA with GSM/GPRS (Global System for Mobile Communications/General Packet Radio Service) communications capabilities was expected to be available through select retail stores as of last Friday for a price of $549 in the U.S.

Last Thursday, the Milpitas, California, company cut 50 jobs from its hardware business. Palm has now cut about 19 percent of its total workforce in the last three months, including layoffs at PalmSource Inc., which develops the PalmOS operating system.

Shipments of Palm's PDAs declined 12.2 percent in 2002, compared to an industry-wide decline of 9.1 percent, according to research released in January by Dataquest Inc.

Palm also released details on charges it expects to take in the third quarter. The company will record charges of between $40 million to $45 million related to the head-count reductions and changes to Palm's real estate holdings. Palm will also take a noncash charge of about $100 million to reflect the reduction in value of 39 acres it owns in San Jose, California, saying it no longer expects to hold that land for the amount of time required to realize the current carrying value.

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