Palm Cuts Forecast After Handset Sales Slow

In a move that will displease the stock markets, Palm said it was scaling back its revenue forecast for the year after reporting slower than expected sales of its handsets

Palm has announced that it cut its revenues forecasts for both the fiscal third quarter of 2010 and for the entire year after seeing slower than expected consumer sales of its smartphones.

While Palm statement lacked specifics about the “slower than expected consumer adoption of the company’s products”, many analysts and industry watchers suspect that Palm’s Pre Plus and Pixi Plus smartphones have not sold well since Palm announced a new partnership with Verizon Wireless earlier this year.

When Palm first introduced the Pre and Pixi, which use the company’s webOS, in 2009, both smartphones were exclusive to Sprint. Palm executives have been tight-lipped about how many Pre and Pixi smartphones the company has sold since announcing the Verizon deal.

“Palm webOS is recognised as a groundbreaking platform that enables one of the best smartphone experiences available today, and our work to evolve the platform and bring industry-leading technology to market continues,” Palm CEO Jon Rubinstein wrote in a statement. “However, driving broad consumer adoption of Palm products is taking longer than we anticipated. Our carrier partners remain committed, and we are working closely with them to increase awareness and drive sales of our differentiated Palm products.”

For the fiscal third quarter of 2010, Palm is now calling for revenues of $300 million (£196 million) and $320 million (£209 million). Wall Street analysts had been calling for revenue of about $424 million (£277 million) in the quarter. For the 2010 fiscal year, Palm said it expects revenues to fall below the previous forecasts range of $1.6 billion (£1.04 billion) to $1.8 billion (£1.2 billion).

Palm’s revenue woes come at a time when the worldwide handset market appears ready for a comeback following a slow 2009, when the industry saw revenues and shipments drop thanks to the global recession. A new report from Gartner found that Apple’s iPhone and smartphones using Google’s Android operating system helped the market bounced back in the fourth quarter of 2009.

There’s also a matter of fierce competition in the smartphone market, where handset makers are not only looking to capture traditional business customers, but also more and more consumers. The Gartner report found that Research in Motion’s operating system, which runs on the company’s BlackBerry handsets, shipped on 34 million smartphones in 2009, while the webOS shipped on only 1.1 million. In addition, the number of smartphones running Google Android grew by 3.4 percent.

Palm had hoped the Pre and Pixi, along with webOS, would help the company comeback after several years of watching RIM and Apple take the lead in the smartphone market. Now, those plans seem in doubt.

Palm plans to announce its latest quarterly results on 18 March.

By the end of day on 25 February, Palm stock was trading at $6.53 (£4.26). During the past 12 months, the company stock traded as high as $18 (£11.75) a share.

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