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Palm halves Q4 revenue guidance, doubles loss

Calls off Extended Systems merger too. Oh dear

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Palm has canned its plan to buy Extended Systems after admitting that its Q4 revenue will be half what the PDA maker had originally expected.

Palm previously said its revenue for the three months to 1 June would come in at $300-315 million, down a little on the $350 million it posted for the same period last year. Yesterday, however, it cut that prediction to just $140-160 million.

The loss it is expecting ballooned from $80-85 million to $170-190 million.

The company blamed the revenue shortfall - 'collapse' might be a better word for it - on problems shipping of its 'rescue' product, the m50x family of high-end PDAs. Initial batches of the m500 and m505 have gone out to resellers, but they will not be able to order any more.

That said, IBM this week began selling its licensed version of the two handhelds, the c500 and c505, but that doesn't help Palm half as much as selling its own machines would.

Palm's attempt to sell-off its inventory of the old Palm Vx can't have helped much either. Indeed, Palm reckons its m50x shipment problems hit sales of its other models. Price cuts hit revenues, but not as much as not selling product. We wonder to what extent the massive drop in expected Q4 revenues is down to ongoing poor sales of the Vx rather than limited M50x sales.

The point is, if people won't buy the Vx even when there are almost no m500s and m505s to be had, they're not going to do so when they can get their mitts on the new machines. Further price cuts are planned, Palm said, but it's hard to see them helping much. Palm's Q4 figures will now include a $300 million inventory write-down.

All that may explain why it's pulling out of the $264 million Extended Systems deal, though the parting of the ways was described as mutual and amicable.

The plan was pulled the better to "serve both companies and their respective shareholders", which suggests that buying Extended and taking restructuring and inventory write-down hits would nuke Palm's earnings far more than its shareholders would be willing to put up with.

As it is, they may well soon start baying for CEO Carl Yankowski's blood. The Extended acquisition was to have spearheaded Palm's drive into the corporate market and to go some way to free itself from its reliance on hardware sales. The too-early announcement of the m50x family or the too-late shipment of said have dented Palm's credibility as the PDA market leader, especially in the light of fleet-footed Handspring's successes, Sony's much sexier new Palm-based kit and the high demand for Compaq's iPaq.

True, recession has hit the PDA market, but its hasn't harmed other players to the extent that Palm has been hammered. Yes, Palm, as the market's lead OS and platform developer, but that's no excuse for the botched Vx-to-M50x product transition. ®

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Palm sales fell 20% in April admits CFO
Palm cuts prices to clear unsold stock
Palm m50x line to be late for PDA price war
Palm to axe 250 jobs as it dips into the red
Recession to halve PDA market growth

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