Handspring, Research in Motion Say Too Little for Investors

Handspring (HAND Quote) and Research in Motion (RIMM Quote) both had a chance to help themselves Wednesday, but neither could muster the right words.

Both were battered Wednesday in the wake of Palm's (PALM Quote) lousy outlook Tuesday. Palm talked of weak demand this quarter, which investors took to mean that competitors Handspring and RIM also could face tough times. Handspring was off $4.44, or 27%, to $11.75, while RIM tumbled $4.51, or 18%, to $20.17.

Handspring came out and reiterated its fiscal third-quarter guidance of $117 million to $123 million in revenue and a loss of 6 cents a share. The third quarter ends this month. For fiscal 2001, which ends in June, the company expects revenue of $432 million to $445 million and a loss of 26 cents to 28 cents. Handspring is expected to report its numbers for this quarter on April 12.

But Handspring, Palm's main rival in handheld devices, declined to look beyond June 30, which investors took to mean it has the dreaded limited visibility. Research in Motion, meanwhile, said nothing. It makes the popular Blackberry pager.

Palm Tuesday said the macroeconomic slowdown has severely affected its sales, leading to concern that "this ailment may spread and affect Handspring's sales," Joseph To, an analyst at Lehman Brothers, wrote in a report. (He rates both Palm and Handspring strong buys, and his firm hasn't done underwriting for either.)

To notes that Palm's inventory levels in the channel are at an extraordinarily high 12 weeks, which could "cause Palm to lower prices in order to move product off the shelves. Handspring would have to react accordingly to protect market share, which would lead to a price war between the two companies."

With economic weakness causing corporations to cut back on their technology spending, RIM also is a likely victim.

"Our biggest concern for RIM is that reseller partners such as Aether Systems (AETH Quote), GoAmerica (GOAM Quote), Vaultus, Outercurve, etc. are especially at risk of cuts in discretionary IT [information technology] spending. These companies are developing wireless applications on top of the Blackberry platform," Virginia Syer Genereux, an analyst at Merrill Lynch, wrote in a report. "Our concern is that these companies have inventories of RIM devices that are being deployed much more slowly in this environment." (She rates RIM a short-term accumulate and a long-term buy. Her firm has done underwriting for the company.)

The consensus estimate of analysts polled by Thomson Financial/First Call is 7 cents a share for fourth quarter, which ended last month. The revenue estimate for the quarter is $75.3 million. RIM is expected to report on April 11.