5/18/01 WSJ Article On Palm/Hand/Rimm:
Shares of Rival Device Makers Tumble After Palm's Warning
By Donna Fuscaldo
NEW YORK -- Investors battered shares of Palm Inc. and rival hand-held computer maker Handspring Inc. Friday following Palm's warning that its fiscal fourth-quarter loss will be more than double what it had earlier projected.
In 4 p.m. trading, Palm shares lost $2.03, or 29%, to $5.02, while Handspring shares fell $1.69, or 16%, to $8.69, both on the Nasdaq Stock Market. Both stocks hit 52-week lows Friday.
Wall Street analysts reacted Friday by downgrading their ratings on Palm's shares. Handspring, Mountain View, Calif., which makes a hand-held computer that uses Palm's operating system, also suffered a downgrade. CIBC lowered its rating on both Handspring and Palm to "buy" from "strong buy."
Bear Stearns analyst Andrew Neff slashed his rating on Palm, Santa Clara, Calif., to "neutral" from "buy." The analyst said Friday he was prompted to do so not only because of the earnings warning but also because of the uncertainty surrounding Palm's enterprise strategy since it announced Thursday that it has canceled its purchase of Extended Systems Inc.
The deal, unveiled in March, was supposed to be the centerpiece of Palm's strategy to sell hand-held devices and enterprise-class mobile infrastructure software to the corporate market.
Because Palm terminated the deal, Mr. Neff said in a research note that now "a high level of uncertainty exists as to whether Palm could offer a compelling product for the enterprise market."
The analyst also said Palm's corporate strategy may be affected by the U.S. patent awarded Wednesday to Research In Motion Ltd. for its process of directing messages from a single e-mail address between a server computer and wireless device.
RIM, the maker of BlackBerry pagers, said Wednesday that the patent will help the company maintain its dominance of the corporate wireless hand-held market.
In addition to concern's about Palm's corporate strategy, analysts also took issue with the company's cash position.
Eric Rothdeutsch, an analyst at Robertson Stephens, said Friday he expects the company's cash position to "worsen substantially" and should burn at least $350 million of its $596 million cash balance from the third quarter.
Bear Stearns's Mr. Neff noted Palm might need financing by fall and the company may be acquired under unfavorable terms. The analyst has a 12-month price target of $4 to $6 on Palm's stock.
Late Thursday, Palm said it expects fourth-quarter revenue of between $140 million to $160 million -- roughly half of its previous guidance of $300 million to $315 million. Palm blamed the shortfall on slower-than-expected production of the new Palm m500 and m505 hand-helds, a product transition problem that was compounded by the economic slowdown.
The company now expects a pro forma operating loss of $170 million to $190 million, compared with previous expectations of a $80 million to $85 million pro forma loss. |
