Palm and Nortel bring more bad news

Palm hopes that its new model will boost sales

US handheld computer maker Palm and Canada's telecom giant Nortel Networks have both issued profits warnings, blaming deteriorating conditions in the global economy.

After the US market closed on Tuesday, Palm reported better than expected profits for its third quarter (the three months to 2 March), but reduced its forecast for the fourth quarter.

The company also announced that it would cut about 250 jobs from its workforce of about 2,000.

The news was accompanied by a similar announcement from Nortel, which said it would cut a further 5,000 jobs.

Nortel, the world's largest supplier of telecom equipment, also issued its second profits warning for the first quarter.

Palm

In addition, Palm said it would delay the construction of its new headquarters in California which was scheduled to begin this month.

The company's shares sank more than 35% in after-hours trading as a result of the announcements.

For the three months, Palm sales rose 73% from a year earlier to $470.8m, but that was below analyst expectations of $474m.

Profits, excluding one-off items, came in at $9.3m, twice the lowered expectations.

Growing exports

Exports of Palm handheld computers were 112% higher so far this year compared to the previous year, bringing the total Palm's sold since 1996 to 13 million devices.

"Palm has recently begun to feel the effects of the deteriorating macro economic environment, resulting in a reduced incoming order rate amid signs of what appears to be a sector slowdown," said Carl Yankowski, Palm's chief executive.

Nortel

Meanwhile Nortel now expects sales in the range of $6.1bn to US$6.2bn for the first quarter.

This is below the company's previous estimate of US$6.3bn.

"We continue to feel the impact of the economic downturn in the US and are now seeing customers globally assess its effect on their businesses," said John Roth, president and chief executive.

In February, the company halved its estimates for 2001, saying revenue would only increase by 15%.

The latest job cuts bring total lay-offs for the year to 15,000, or about 15% of its global workforce.