Handheld Stocks Battered After Palm Disappointment

Misery loves company today.

Handspring HAND and Research in Motion RIMM, two Palm competitors were also hit by analyst comments and were caught in the downdraft following's Palm's warning last night. If Palm, a company synonymous with the idea of handheld computing, has run headlong into a wall of inventory and slowing demand, then how will its competitors fare?

In a press release, Handspring CEO Donna Dubinsky affirmed revenue targets for the rest of the year last night. "While no company is immune to current economic conditions, we see continued sales growth in our business at this time," she said.

But Bear Stearns analyst Andrew Neff wasn't exactly buying that line. "The key operative phrase may be that they see continued sales growth in our business 'at this time' -- which may not address the near-term situation of excess inventory," he said. "Clearly, the outlook for Handspring is at risk given the comments by Palm. Handspring's press release was issued in order to allow them to answer questions under Regulation FD, so we would not place too much weight on their comment."

It seem that people just don't believe that Handspring will be able to meet those targets. Like Palm, it also got crushed in midmorning trading, falling 27.4% to $11.75.

That said, many analysts don't believe Handspring's situation is nearly as bleak as Palm's. According to Credit Suisse First Boston analyst Marc Cabi, the company has less exposure to the weak economy. "Handspring has significant new channels being introduced in the quarter, stronger sell-through, market share in-road with new products and a more linear revenue stream," he wrote, keeping the company at a buy rating while reducing estimates.

Competitor Research in Motion has also had a tough day following the Palm announcement.

"What is the impact on Research in Motion here?" began a note from Merrill Lynch analyst Virginia Syer Genereux, echoing a question asked by many Research shareholders this morning. "We think Palm's news reminds investors that RIM is likely susceptible to the slowdown in enterprise information technology spending. We have noted several times that RIM's May quarter could be at risk."

And investors certainly were reminded that RIM could be in a weakened position. Its stock fell 16.1% to $20.68.

Much of RIM's future hinges on its wireless Blackberry platform. If resellers like Aether Systems AETH decide to spend less on discretionary information technology spending, then RIM's bottom line will feel the pinch. Genereux, who estimates that 20% to 25% of RIM's devices are sold through resellers, fears resellers are holding onto a high level of inventory that is slowly making its way to market -- hurting the company.