Palm warns of loss and plans workforce cut

Handheld computer maker Palm Inc. disclosed plans this week to cut its workforce by 13 per cent and make other cutbacks in response to a reduced revenue outlook and expected fiscal fourth-quarter loss.

San Jose, Calif.-based Palm said about 250 full-time employees and contract workers will be let go as part of the layoffs. Palm, which currently has about 1,900 people on its payroll, also indicated that additional layoffs are likely after the scheduled June completion of an acquisition of Extended Systems Inc. in Boise, Idaho.

The planned cutbacks were announced as Palm reported financial results for its third quarter ended March 2, with revenue increasing 73 per cent from the same period a year ago to US$470.8 million. But the company said fourth-quarter revenue is only expected to total $300 million to $315 million, down from the year-earlier figure of $350 million.

Like other technology vendors, Palm is feeling the effects of the softening U.S. economy. That has resulted in a reduction in orders, said Palm CEO Carl Yankowski in a statement. He added that the company is also being affected by a product transition to its new m500 devices, which aren’t due for volume shipment until the last month of the fourth quarter.

The revenue crunch is expected to lead to a net loss of about $36 million in the fourth quarter ending in early June, according to today’s announcement. That follows a $1.9 million third-quarter net loss, although Palm said that was due largely to costs stemming from acquisitions. Without those costs, the company would have had a net income of $9.3 million.

Palm had said in its fiscal second-quarter filing to the U.S. Securities and Exchange Commission that it planned “to continue to hire a significant number of employees this year.” But because of the reduced business outlook, the company today said it’s now “adjusting its business model and focusing on balance-sheet management.”

During a conference call that was broadcast on Palm’s Web site this afternoon, Yankowski called the layoffs a necessity in “today’s very turbulent business environment.” What Palm is experiencing is part of “what appears to be a [technology] sector slowdown,” combined with the product transition, he added.

Palm said it’s trying to reduce expenses by 10 per cent to 15 per cent from their expected fourth-quarter levels. In addition to the layoffs, the company is postponing construction of a planned new headquarters facility in San Jose that was expected to cost $460 million over a seven-year period. Palm also said its overall real estate plans are being re-evaluated.

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