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Psion falls 25 per cent on profit warning

Hit by component costs, comms business restructure

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Psion isn't going to make as much money this year as it thought, the company admitted today - and it's all the fault of the euro.

Psion's full-year results will end up a long way off from where analysts expected, the company warned. It primarily blames the decline in the value of the euro, which has knocked four per cent off its margins. The reason? Psion buys components in dollars, but the vast majority of its sales take place in Europe, and that means euros.

Worse, the global shortage in certain components - LCDs, Flash memory, for example - has pushed up prices, further eroding Psion's margins, particularly at its Computers division, the operation responsible for its nice-but-pricey PDAs and handhelds.

Psion shares dropped nearly 25 per cent on the news. Psion shares were trading at 432.5 pence at the time of writing, down from yesterday's closing price, 575 pence.

Of course, the weakness in the euro isn't the only culprit in Psion's woes. It's Connect division is experiencing sliding revenues as business and consumer demand for its modems and PC Card products decline. Fortunately, its OEM business remains vigorous, the Financial Times notes.

Still, some change is required, and Psion's plan is to push into next-generation comms products, such as Bluetooth wireless peripherals and, presumably, ADSL kit. The template here is 3Com which found its traditional modem and comms business shrinking and earlier this year moved to extract itself from those increasingly unprofitable. The question, then, is why it's taken Psion so much longer to figure out that it's going to have to adapt too.

The restructure of the Connect division will results in a £2.5 million charge. That's in addition to the £2 million one-off it will also make thanks to its acquisition of Canadian network integration and communications group Teklogix. ®

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