Palm Stock Sinks on Revenue Forecast

Shares of cell phone manufacturer Palm (PALM Quote) plummeted almost 40% Tuesday after the company issued a second-quarter revenue forecast well below analysts' projections.

The company, which is struggling with slowing demand for smart-phones and other handheld products, expects second-quarter revenue between $190 million and $195 million. Analysts had estimated revenue of $330.8 million for the quarter.

Palm's stock tumbled as much as 38.8% to $1.15, as investors reacted to the company's gloomy outlook. More recently, shares were down 15.4% to $1.59.

The Sunnyvale, Calif. -based company, which reported revenue of almost $350 million in the second quarter of last year, is wrestling with an extremely tough spending climate. "We are seeing unprecedented dynamics in the global markets as economic uncertainty hampers demand for consumer products," CEO Ed Colligan said in a statement released Monday.

Citi Investment Research analyst Jim Suva nonetheless described Palm's revenue miss as "staggering" in a note released this morning, warning that the next few months could get even tougher for the firm.

"With no new products until the first half of 2009, we expect fundamentals to get even worse for Palm during the next few quarters," he wrote. "Palm's products lack a competitive edge and the necessary timeliness to market at a time when competition is coming out with a faster lineup of even more compelling products."

The analyst also reiterated his 'sell' rating for the company and lowered his target price from $3.75 to $1.20.

Palm certainly faces stiff competition from consumer technology giant Apple (AAPL Quote), which sold 6.9 million iPhones in its recent fourth quarter. Rival Research In Motion (RIMM Quote) is also ramping up its efforts in preparation for the holiday season, recently unveiling its first touch-screen phone, the Blackberry Storm.