Palm has issued a profit warning and laid off more than 200 employees.
Sunnyvale, California-based Palm said that Q3 revenue will be between $205 million and $210 million, substantially lower than previous guidance of $230 million to $250 million. Investors expected the worst on Friday when Palm said it had released 19% of its workforce, about 250 people, over the past three months.
As well as declining revenue, the company faces third-quarter charges of about $140 million resulting from a previous restructuring and the writing down of the value of its property in San Jose, California resulting from falling real-estate prices in Silicon Valley.
Palm blamed a soft enterprise market for the revenue drop-off, with sales of its newly released high-end Tungsten T, the first to run its 32-bit Palm OS 5, failing to meet expectations. Demand for entry-level and mid-range devices remains within expectations.
Despite device sales being singled out for the poor sales, Palm made its job cuts across its two operating divisions: the hardware Palm Solutions Group and its PalmSource operating systems business. The latter is due to be spun out from Palm in the next few months to better serve licensees of Palm OS. Palm said the planned break-up of the company would not be put in jeopardy by its problems.
While not encouraging from an investor standpoint, Palm’s latest job cuts could be seen as the final rationalization in a plan that has seen the company turn around its business strategy over the last 12 months.
Numerous criticisms made over the past year against the company have been met head on. For instance, the belief that Palm needed to move out of the increasingly commoditized consumer market, offer true wireless capabilities, adopt mobile Java, play multimedia files and offer a 32-bit OS and hardware competitive with Microsoft’s then seemingly ascendant Pocket PC platform.
Since then, Palm’s market share, albeit in a depressed market, has actually grown, consolidating its position as the leading PDA hardware and software vendor.
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