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Palm's Guidance Disappoints

Shares fall as third-quarter forecasts fails to meet analysts' expectations.

Shares of

Palm

(PALM)

fell Tuesday after the company announced third-quarter guidance that was below analysts' expectations and said it will suspend specific financial forecasts in future quarters.

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Disappointed investors sent the stock down 64 cents, or 10.8%, to $5.29 in after-hours trading.

Palm also posted lower-than-expected revenue in the second quarter due to the lay in the delivery of its Treo 755p phone.

For the third quarter, the company guided revenue in the range of $310 million and $320 million, lower than analysts' expectations of $358 million.

Excluding charges, Palm expects a loss of 14 cents a share to 16 cents a share, compared with analysts' expectations of a loss of 4 cents a share. Including charges, it expects to post a loss of 31 cents a share to 33 cents a share.

The company said it expects gross margin in the range of 30.3% and 30.8% for the third quarter.

Palm also said that although it has suspended quarterly financial guidance, it will continue to offer general business guidance and comments on industry trends.

In line with its preliminary results issued on Nov. 6, Palm said total revenue in the second quarter ended Nov. 30 was $349.6 million compared to revenue of $392.9 million a year ago. Analysts were expecting revenue of $350.29 million.

Excluding stock-based compensation expense and other charges, the company posted a second-quarter net loss of $7.8 million, or 7 cents a share, compared with a profit $17.6 million, or earnings of 17 cents a share a year ago. Analysts were expecting a loss of 8 cents a share.

Including charges, the net loss was $9.6 million, or 9 cents a share, compared with $12.8 million, or 12 cents a share, for the year-ago quarter.

Palm had said earlier this month that a delay in the certification of a key product -- the Treo 755p phone -- would lead to a shortfall in revenue in the second quarter.

"The time required to run every quality issue to ground before release pushed delivery of the product out of the quarter and was the primary reason we did not meet our revenue expectations," Ed Colligan, CEO of Palm told analysts on a conference call.

"We have experienced quality issues on legacy products that have affected customer satisfaction and driven up warranty costs. While we can't change the past, we are determined now and in the future to deliver only products that top industry standards for quality," he said.

Palm also said it anticipates component supply to be tight, which could constrain its shipments during the third quarter. Overall smartphone revenue in the third quarter will be flat or slightly down on a quarter-to-quarter basis, said Palm, while revenue from handhelds will experience a "normal seasonal decline."

Sales of smartphones for the quarter was up 11% from the year before to 686,000 units, while revenue from smartphones was $282.4 million.