Palm May Be Done With One Set of Problems, but Another Looms

We can see the end of the tunnel. It's damp and dark.

Handheld maker Palm (PALM Quote) has the potential to close a gloomy chapter in its recent history Thursday when it reports fiscal first-quarter earnings after the market closes. If Palm can put the demons of a six-month-long inventory correction, ensuing price war and bungled product launch of the m500 family of handhelds behind it, it will be rewarded with a new set of hideous monsters. Microsoft's (MSFT Quote) Pocket PC-based devices are gaining popularity, according to worldwide figures, consumer spending is questionable in the near term, and handhelds didn't sell very well when spending was steady. Hooray!

Palm started 2001 off with a stumble, going on a component binge that meant the company headed into an economically dismal climate with hundreds of millions in parts to clear from the shelves. In its fourth quarter, its revenue fell 65% sequentially from $471 million to $165 million, and the company took a staggering $436.5 million in charges to cover inventory, real estate and layoffs. CFO Judy Bruner promised to reduce channel inventory levels from 10 weeks to four to eight weeks and work to reduce the $107.8 million in inventory still on Palm's books. The company projected $200 million to $220 million in revenue for its fiscal first quarter, for a $60 million to $80 million operating loss. The Street anticipates an 8 cent-a-share loss, as reported by Multex.com.

The spring quarter was tough all around, as worldwide PDA shipments declined 21% sequentially to 2.8 million in the calendar second quarter, according to Gartner Dataquest. Palm slipped from having a 50.41% market share in the first quarter to a 32.1% slice in the second, while Compaq (CPQ Quote) (7.8% to 16.1%) and Hewlett-Packard (HWP Quote) (3.7% to 6.9%) headed in a positive direction, boosting Microsoft's Pocket PC presence. ...