Palm Sales Lower Than Expected

Tough competition from Android handsets and Apple's iPhone hurt Palm's quarterly revenue forecast.

Smartphone maker Palm said Thursday that sales are running far below its previous forecast, an indication that the company continues to struggle in the highly competitive market increasingly steered by trendsetters Apple and Google.

The smartphone pioneer reported that revenue for the fiscal third quarter would be in the range of $285 million to $310 million. For the full fiscal year, Palm said revenue would be "well below its previously forecasted range of $1.6 billion to $1.8 billion." Palm did not provide a revised forecast. The company is scheduled to release quarterly earnings March 18.

Palm's quarterly forecast fell far short of Wall Street estimates. Analysts polled by Thomson Reuters expected revenue of $425 million. Palm's disclosure spooked investors. The company's stock price tumbled more than 15% to $6.83 a share in early Thursday afternoon trading on the Nasdaq Stock Exchange.

Palm attributed its disappointing to lower-than-expected sales to consumers and orders from carriers, which are deferring orders to future periods.

"Driving broad consumer adoption of Palm products is taking longer than we anticipated," Jon Rubinstein, chairman and chief executive of Palm, said in a statement. "Our carrier partners remain committed, and we are working closely with them to increase awareness and drive sales of our differentiated Palm products."

Palm makes the Pre and Pixi smartphones that have received praise from reviewers, but have yet to catch on with consumers. Palm's troubles in part stem from its choice of carriers in launching the smartphones last year, partnering with Sprint Nextel, a much weaker national carrier than leaders Verizon Wireless and AT&T.

Verizon Wireless, a joint venture of Verizon Communications and Vodafone Group, started carrying Palm smartphones last month, and AT&T is expected to follow suit soon. Both carriers, however, are focusing their marketing muscle on the phones they sell exclusively. Verizon offers Motorola's Droid, which runs Google's Android operating system; and AT&T is the exclusive carrier in the United States for Apple's iPhone.

Palm also has fallen behind competitors in attracting independent application developers for its mobile platform. Apple and Google have done far better than Palm in attracting developers for their platforms.

Google's success at the expense of Palm is reflected in the success of Android. The OS, a relative newcomer to the market, captured a 5.2% share of the U.S. smartphone market in the last quarter of 2009, more than double the 2.5% share in the previous quarter, according to ComScore. Android phones are expected to overtake Palm in subscriber numbers.

Palm's troubles come despite double-digit growth in the smartphone market. Globally, sales of the advanced phones jumped 24% year over year in 2009 to 172 million units, according to Gartner.

Palm halted production of its handsets in Taiwan earlier this month, setting off speculation about the company's viability. A company official said in an email: "Palm regularly adjusts its product manufacturing levels to manage inventory. In anticipation of the Verizon Wireless launch and Chinese New Year, we increased production levels prior to February, and anticipate ramping production back up after the Chinese New Year ends."