Palm numbers suggest dire quarter for handhelds

The PDA industry looks set for another quarter of bloody retreat, if an earnings warning by Palm Inc holds true.

Santa Clara, California-based Palm warned yesterday that its fourth quarter fiscal figures would fall way short of expectations, but said this was down to an industry downturn in PDA sales, which it insisted would soon be reflected in other vendors' numbers and market research figures.

Palm had forecast that sales for its fourth fiscal quarter ending May 31 would be $290m to $300m, and that it would breakeven. Yesterday, it said that sales would be around $230m, and that it would not meet the break even target.

The outlook for the summer is even more dismal, with the company expecting sales to drop to $175m to $185m, with an operating loss of $40m to $45m.

While the figures would have been bleak enough on their own, Palm insisted that it was caught in an industry wide malaise, with little evidence of an expected seasonal uptick. If anything, said Judy Bruner, Palms CFO, "It appears we have maintained or gained market share."

Looking ahead, said Bruner, the company did not expect any uptick in the market in the immediate future. She said the firm did not expect any meaningful improvement over the summer, particularly in Europe. The summer is likely to see vendors scrapping over a shrinking market, with Bruner saying the company's focus will shift to demand generation and market share.

However, said chairman and CEO Eric Benhamou, "we don't think this market will remain lousy for ever." He said, "we see many indications of an upturn in late summer into fall," and there will be "some meaningful growth in that time frame." The company now expects it will become profitable in the fall.

In the meantime, apart from chasing market share, Benhamou said the company would remain on track to meet its three corporate objectives for this year. These are the creation of separate hardware and software companies; executing on its enterprise strategy; and migration to the Palm processor.

The shift to the higher powered ARM processor, along with the upcoming release of the Palm OS 5, will be essential part of what Benhamou presented as a new age for the handheld market. "Our industry is about to end the first chapter," he claimed, and is "about to move into the second chapter."

On the development of OS 5, Benhamou said the company was well on schedule, and would ship to licensees a few weeks ahead of plan.

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