Palm cuts revenue forecast, shares plummet

Palm's comeback appears to be sputtering. The smartphone marker slashed its fiscal third-quarter and full-year revenue targets, citing slower-than-expected sales of its webOS products--action that has sparked fresh worries about the company's future.

The company said it expects revenue in the current quarter to be between $285 million and $310 million on a GAAP basis, well below most analyst estimates of around $425 million. Palm said that, as a consequence, it now expects full-year revenue to be "well below" its previous estimate of between $1.6 billion and $1.8 billion. The company said its carrier partners have reduced device orders or pushed them to future quarters.

"Palm webOS is recognized 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 said in a statement. "However, driving broad consumer adoption of Palm products is taking longer than we anticipated."

Earlier this week, analysts had worried about how Palm's products were doing at Verizon Wireless. The nation's largest carrier has been selling two of Palm's devices, the Pre Plus and Pixi Plus, since January. Canaccord Adams analyst Peter Misek told Barron's that he thinks sales of the Pre Plus and Pixi Plus so far are less than 50 percent of the company's targets.

UBS analyst Maynard Um added his voice to the downtrodden chorus.

"Demand weakness is not necessarily a surprise as we noted earlier that a slowing U.S. net add environment would likely have the greatest impact on Palm given its small base," Um wrote in a research note. "However, the magnitude is slightly surprising to us given management's prior conviction and visibility to orders. While Palm cites deferral of orders to future periods, webOS demand will likely be called into question. With the U.S. market being Palm's best opportunity for more levered growth, we are more concerned with the future growth opportunity."

Palm's stock this morning plummetted more than 18 percent on the company's announcement, to around $6.62 per share.

For more:
- see this release
- see this Reuters article
- see this Barron's blog post
- see this All Things D blog post

Related Articles:
Palm watching: Analysts worried about uptake at Verizon
Analyst confident about Palm-Verizon partnership
Verizon's Palm pricing: WiFi hotspot service to cost $40
Upgraded Palm Pre, Pixi headed to Verizon this month
Top Palm investor dismisses takeover talk

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