LONDON -- The fact it was the now familiar story of a weak euro that forced Psion to issue a profit warning on Friday will provide scant comfort to those who invest in this palm-top computer maker as a way of buying into the story of the much-ballyhooed mobile phone consortium Symbian.

Depressingly, this is the second profit warning from Psion in little more than a year and half, and raises the question of how much longer investors will be willing to continue investing in a company that seems to consistently disappoint, and all for a slice of the as-yet unproven Symbian, which is based on the as-yet unproven next-generation mobile telephony.

Value City

The answer, of course, is how much one values Symbian -- the venture of Psion,

Nokia

(NOK) - Get Report

,

Motorola

(MOT)

,

Ericsson

(ERICY)

and

Matsushita

(MC) - Get Report

that is designing next-generation mobile phones based on Psion's EPOC operating system.

Although Symbian's operating system faces challenges from

Microsoft

Ericsson

(MSFT) - Get Report

and

Palm

(PALM)

, considering that the four wireless partners in Symbian supply 75%-80% of the world handset market, many analysts are predicting that Symbian will win this battle comfortably.

As Ian Burgess, analyst at

Credit Suisse First Boston

, wrote in a research report on Symbian: "Although we are reluctant to simply assume that EPOC can become the

de facto

industry standard, we still see this as the most likely outcome." Many other analysts agree with this. CSFB is Psion's house brokerage and has yet to issue any guidance on its buy rating in light of Friday's action.

Eyes on the Prize

Indeed, the prize will be considerable. Symbian expects to achieve mass-volume production of the new phones in two years' time. With licensing agreements, Symbian expects to sell 730 million devices by 2002, which is five times the size of the current PC Internet market. And with Psion the major shareholder in Symbian with 28%, when the venture floats -- the timing of which will be "subject to good progress in the establishment of volume products and prevailing conditions in financial markets," meaning anybody's guess -- it will be worth a considerable amount of money. Some analysts' sum-of-the-parts valuation for Psion put Symbian at almost 75% of the total.

However, even assuming the above is true, judging from the harsh reaction to Friday's profits warning, Psion would be foolish to assume investors are willing to overlook Psion's shortcomings in favor of the future promise of Symbian.

Psion's shares closed in London down 29% at 410 pence ($5.86), and that on day when the

Techmark 100

managed to rise almost 1.7%. Even after this fall in the share price, Psion is trading at a historical price-to-earnings ratio of 478 -- an eye-watering valuation considering Friday's miserable trading statement.

Psion Disconnect?

Analysts were forecasting profits this year of 6.7 million pounds, but Psion said they would be "well below" that -- how much below it didn't say. The company blamed the weakness of the euro for bringing down its margins by approximately 4 points against the same period in 1999. The effect was particularly pronounced at the Psion Computers division, where component purchasing is principally dollar-denominated but a high proportion of sales is in euros.

Yet it is Psion Connect, which makes PC modem cards, where the problems are especially pronounced. The company's higher margin PC Card modem distribution business is now in "rapid decline" and the company will take a charge of about 2.5 million pounds to restructure this part of the business.

"Look there's been a secular trend toward embedded modems no matter how you look at it," says Peter Wyatt, analyst at

Nomura

, which has no investment banking relationship with Psion and Friday reiterated its long-term buy stance.

That's true. Yet bearing in mind that Psion's last profit warning in February 1999 was also because of that division, it does raise the question of why management has still not satisfactorily addressed this problem. Psion said it aims to return the division to profitability in 2001.

The debate seems to hinge on whether these periodic dips in Psion's share price because of problems with the company's core businesses represent a good buying opportunity or not. If history is anything to go by, there will be many more chances to decide.