Palm m50x line to be late for PDA price war

Volume shipments coming 'later than planned' - inventory backlog to provoke price cuts

Palm's next-generation top-of-the-range PDAs, the m500 and m505, may ship on time, but not in volume, the company warned yesterday - even as one analyst claimed the palmtop market is on the verge of a price war.

Speaking at a meeting with Wall Street analysts, Palm CEO Carl Yankowski said of the m500 and m505, which the company unveiled last month: "Volume shipments are going to be a few weeks later than we had planned."

Palm is betting on the success of the two new machines to lift its out of its financial woes. Two weeks ago, the PDA pioneer admitted its current quarter would see revenue way down on expectations. Q4's revenues are set to come in at around $300-315 million, a quarter-on-quarter fall of over 36 per cent.

A major part of the problem is a big dip in sales. That, in turn, is leaving the company with rather a lot of unsold handhelds floating around. With $200 million worth of kit in Palm's warehouses and the channel, new machines getting close to launch and increased competition from rival vendors, the time is ripe for major price cuts.

That, reckons Lehmann Bros. analyst Joseph To, leaves the market on the verge of a price war. "Given the high levels of inventory at Palm and in the channel, we believe there could be the potential for a price war come May, which would have a negative impact on both Palm and Handspring," he said in a report to investors.

That Palm is planning to tackle is problems head-on was signalled by Yankowski yesterday. "We are not standing around. We are not waiting just for the economy to improve," he said.

"We are working very hard to accelerate our penetration into the Fortune 1000 enterprises and schools, although we understand that there is some slowdown there as well."

Palm has already said it's going to spend around $165 million this quarter promoting its new PDAs, which are intended to defend the company's dominance at the high end of the market from PocketPC - and Compaq's iPaq in particular - which has been making significant inroads into Palm's marketshare.

Palm's CFO, Judy Bruner, is expected to unveil the company's plans to tackle its inventory later today. ®

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