Handheld computer maker

Handspring

(HAND)

narrowed its second-quarter loss but said sales dropped 32% from a year earlier, hurt in part by an industry slowdown.

The Mountain View, Calif., maker of the Treo Communicator said sales were $47.8 million, down from $70.5 million a year earlier. The company posted a net loss of $12.3 million, or 8 cents a share, compared with a loss of $19.8 million, or 16 cents a share, in the same period a year ago.

Excluding amortization of deferred stock compensation and intangibles, the company reported a pro forma net loss of $10 million, or 7 cents a share, from a loss of $14.4 million, or 12 cents a share, a year ago. Wall Street analysts had expected the company to report a pro forma net loss of 8 cents a share.

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Ahead of the earnings report, which came out after the closing bell, Handspring shares ended the day down 4 cents, or 3.5%, at $1.10. After the report, the shares slid 25 cents, or 22.7%, to 85 cents in after-hours trading.

The company said it is restructuring its lease obligations of about $350 million on two buildings that it no longer plans to occupy. As part of that agreement with the landlords, Handspring plans to pay $15.3 million in unrestricted cash and $40.9 million in restricted cash in the third quarter. The company also will need to pay $5 million in debt and lease payments over the next five years, in addition to granting the landlords warrants to purchase 10 million shares of Handspring stock.

In a prepared statement, the company said it plans to take a $75 million to $80 million charge against earnings in the next quarter to account for the lease restructuring.

During the quarter the company also settled a long-standing patent dispute with rival

Research In Motion

(RIMM)

over the use of thumb keyboards that are built into Handspring's Treo line of handheld computers and smartphones. Investors saw the dispute as a drag on the stock, which shot up 35% in November when news of the resolution became public.