Everything Palm (PALM) has must go, now! For the incredible price of $120, you can get a Palm m100. We're giving away Palm Vs for a song! For the next three months, drive on down to Palmz R Us and get the handheld device you've always wanted for prices that are clinically insane! During a limited time, we'll throw in our humiliation for free!

Palm announced last week it will be sullying what has been a rocketing new market by drawing down $300 million in inventory. This refuse will bring Palm back to form in time to launch its delayed m500, but in the process its sewage is tainting the heretofore pristine image of the handheld industry and competitor

Handspring

(HAND)

. If you want to buy a Palm V, this is great news. If you want to buy Palm stock, this is your time to ask yourself if this blunder is a one-timer, or if it's a product transition flub that could be repeated. For Handspring lovers, prepare to be frustrated by the connection between the two stocks.

By slashing and burning its prices, Palm is ravaging the beauty of a young market. The handheld market is springy and new, maintaining fat margins with a constant supply of new products users want to pay full price for. Want wireless with that handheld? Want it to double as an MP3 player? Want to use digital pictures with it? Then pay our perky full prices.

You won't be seeing that again until the middle of summer, just in time for a seasonally slow fall quarter. After both companies held up in a weak holiday season and the beginning of 2001, Palm became the surprise undoing of the sector in late March. Its announcement of an anticipated revenue decline in its current quarter became the catalyst for five downgrades of its own stock and four downgrades of the Donna Dubinsky- and Jeff Hawkins-led

Handspring

(HAND)

in the past two weeks. Handspring's stock dropped 32% the day after Palm's earnings report. Its closing price Monday of $12.60, after losing $1.65, or 11.6%, on the day, is still off more than $3.50 what it was. Palm's shares are off more than 58% since the day before its earnings announcement. Handspring's solid March quarter earnings report delivered Thursday was met nonetheless with eraser-rubbing across Wall Street as analysts penciled in stable revenues, but lower margins and therefore reduced earnings-per-share for 2001.

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Reason being, Palm has to goose sales in the market. Handspring will either follow suit and its margins will suffer -- the company already is bracing for a 1%-2% dip in margins -- either that or its revenues will fall as Palm wins bargain-hunting buyers. Not the most enticing options, both frustrating because they relate to a Palm error

Needham

analyst Charlie Wolf called "one of the worst we've seen in our 16 years covering the computer industry."

Wolf downgraded Handspring Monday, based entirely on the Palm situation. Wolf explained to

TheStreet.com

that Palm's troubles are twofold: an inventory surplus and the kneecapping of the popular Palm V line with the consumer enticement and then delay of the higher-end m500 line. "It's probably correctible, though. It's not so awful it can't be accomplished in three months. But it leaves Handspring in a hostile pricing environment," says Wolf, whose company hasn't done banking for either.

It won't last forever, thankfully for handheld makers. Bill Crawford at

US Bancorp Piper Jaffray

who has banking relationships with both device makers, estimates the rough patch will be over in the summer. At that point, the sector will bounce back to its sprightly self. But there's no economic indicator, no

Greenspan

-watch, to decide when this will happen again.