Updated from June 29

Palm got slapped Friday after the Treo smartphone maker predicted disappointing first-quarter results.

Earnings for the current period will likely be at least 3 cents a share less than what analysts expected, the company said Thursday. Revenue is likely to fall shy of consensus estimates by about $30 million, Palm said.

The shortfall is due to "transition" issues, said company CEO Ed Colligan in an interview with TheStreet.com. The company will experience a sales gap in Europe later this month due to new environmental regulations there, he said.

Meanwhile enterprise sales of the company's Windows Mobile smartphone, the Treo 700w, are taking longer than expected to complete, he said. "We see both those things being resolved" shortly, Colligan added.

Indeed, the company forecast better-than-expected results for its full year.

But the full-year outlook didn't assuage investors. In early Friday trading, shares of Palm were off $2.40, or 12.9%, to $16.26.

The share price plunge also came despite the company's blowout fourth quarter. In the period ended May 31, Palm earned $27.2 million, or 25 cents a share, which was up 53% from the year-ago quarter when the company posted a profit of $17.7 million, or 17 cents a share, a year earlier.

The company's sales jumped 20% year-over-year to $403.1 million, boosted by revenue from its Treo smartphones.

Excluding stock-options costs and certain other charges, the company would have earned $30.6 million, or 29 cents a share, up from $19.2 million, or 19 cents a share, in the year-ago quarter.

On this basis, analysts polled by Thomson First Call were expecting the company to earn 23 cents a share on sales of $401.7 million. In March, the company predicted pro forma earnings for the just-completed quarter of 22 cents to 23 cents a share on sales ranging from $400 million to $405 million.

For its first quarter, Palm predicted earnings of 13 cents to 14 cents a share -- 18 cents to 19 cents a share excluding options costs -- on sales of between $380 million and $385 million.

In contrast, the Street had previously forecast earnings for the quarter of 22 cents a share excluding options expenses on $413.4 million in sales.

In the first quarter last year, Palm earned $18.2 million, or about 18 cents per split-adjusted share, on sales of $342.2 million.

Palm is discontinuing sales of its Treo 650 model in Europe because of new environmental regulations there, Colligan said, explaining why the current quarter's results will likely fall shy of the Street's estimates.

While the company plans to replace the 650, the only model it sells in Europe, with a new Treo smartphone, it won't introduce that phone until an undisclosed time later this year, the CEO said.

In addition to the sales gap in Europe, the company is seeing slower-than-expected sales of its Treo 700w, Colligan said.

Although Palm launched the model at the beginning of this year, many corporations didn't begin testing it until push email software became available for the device in April, Colligan said on a conference call.

He said that enterprises typically take three to six months to test out equipment before deciding whether to purchase it, implying that sales may pick up this fall.

"We're confident our strategy is sound and that we'll see trials turn into sales in the near future," Colligan said on the call. "It's prudent to set reasonable guidance that we can meet," he later told TheStreet.com.

Palm appears to be more optimistic about the full year. The company did not give specific earnings guidance for the full year.

But its forecast implies an earnings range of about $1.03 to $1.10 a share on sales ranging from $1.89 billion to $1.97 billion assuming its interest income and share count rise modestly.

On this basis for the full year, analysts had called for $1.03 a share in profit on sales of $1.83 billion. For all of its just-completed fiscal year, the company earned $336.2 million, or $3.19 a share, on sales of $1.58 billion, thanks to a nearly $220 million tax benefit.

Without the tax benefit, stock-options expenses and other charges, the company would have earned $88.5 million, or 85 cents a share.

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