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Signs of Life at Handspring

Margins are strong, and the second-quarter loss isn't as wide as had been feared.

What a difference a quarter makes.



not out of the darkness yet, but with $70.5 million in sales and a narrower than expected pro forma loss of 12 cents a share in the second quarter of its fiscal 2002, rays of sunshine have begun to poke through.

Analysts had expected a pro forma loss of 14 cents a share, compared with a 7-cent pro forma loss in the year-ago quarter. On a GAAP basis, the company reported a 16-cent-per-share loss in the second quarter of fiscal 2002, vs. a 15-cent loss in the year-ago quarter.

The handheld start-up saw a stunning 39% year-over-year plunge in revenue from the second quarter of fiscal 2001's $116 million, but it avoided a near-fatal cash crunch and surged ahead of its PDA competitors technologically.

Make no mistake, the handheld market still stinks compared with the high-growth sales days of 2000. The industry entered the 2001 holiday season struggling to regain balance after handheld competitor



spring overpurchase of components and subsequent price-slashing effort.

Both Palm and Handspring devastated their revenue lines in 2001 with a grisly price war, but while Palm delayed a

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-like email pager device and said goodbye to CEO Carl Yankowski, Handspring's admired management team stayed in place and unveiled a breakthrough combination GSM mobile phone and PDA device.

Additionally, Handspring added some security to its cash position when it took a $10 million investment from


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and prepared to sell $35 million worth of its shares in a public offering.

Handspring also nearly doubled its gross margins in the fiscal second quarter to 17% from last quarter's 9% level. The launch of the Treo phone/organizer device -- which will work on GSM networks such as Cingular's -- should help boost margins even more.

US Bancorp Piper Jaffray's Bill Crawford touted "higher-than-expected unit demand" in December as a potential contributor to a decent holiday quarter before the call. Nonetheless, the analyst consensus called for the lower end of Handspring's second-quarter forecast of 8% to 12% revenue growth, or $66 million to $69 million in revenue.

Handspring's prospects earned a Banc of America upgrade Monday from market perform to buy. The stock responded with a 12% jump to $7.70, completing a 542% phoenix-from-the-ashes routine starting at an Oct. 8 low of $1.20.

Investors apparently sold on the news Tuesday, sending the shares down to $7.21 in the after-market Island session after Handspring closed the regular session up 8 cents, or 1%, at $7.78. Palm also came under selling pressure after hours, dipping to $4.35 after closing the regular session up 35 cents, or 8%, at $4.48.