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EDITIONS
Thursday, 30 May, 2002, 22:15 GMT 23:15 UK
Palm admits rough trading
Palm m515
Palm is building new machines, but struggling to make money
Palm Computing, the company which helped kick-start the handheld computer market, has warned that its performance in the past three months fell well short of what it had hoped.

Shortly after the markets closed, the company told investors that it expected to make a loss in the fourth quarter from March to May, instead of breaking even as it had predicted.

Not only that, but sales would be only about $230m (157m), almost 25% down on the $290-300m it was aiming for.

And the next quarter is unlikely to be better, the company said, with sales likely to be just $175-185m.

"Demand in spring did not materialise as we had previously expected," said Eric Benhamou, the company's chairman and chief executive.

"But rather market conditions deteriorated compared to both the year-ago quarter and recent months."

Losing an early lead

The news came as a shock to analysts following the company, who had broadly agreed with the compay's own estimates.

The reaction in the market was swift, with after-hours trading marking Palm shares down as much as 20% following falls of about 5% during the day.

Having virtually invented the palm-sized handheld computer, Palm has been struggling to recover from its missteps over the past couple of years.

The company lost ground both to licensees such as Sony and Handspring which use its operating system, and to machines from the likes of Compaq which run Microsoft's Pocket PC software.

It is now trying to recover with new models and with a split into two companies - one to run the operating system and one to make the hardware.

Turnaround?

Still, Palm insisted the future remained moderately bright.

While its own market share in Europe has been losing ground, the company was at pains to point out that its licensees - when taken together - had expanded their footprint in the US at least, when compared to Microsoft-driven machines.

And it said that improved gross margins, and better cost control were well on the way.

See also:

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