Handspring Adds Another Slap to the Handheld Sector

Jul 18 2001

UPDATE Handspring added another piece of bad news to the troubled handheld sector Wednesday, posting a loss of $32.4 million for the company's fourth quarter of fiscal 2001.

Still, the Mountain View, Calif.-based company beat analysts' expectations by 3 cents a share. Revenue for the quarter was $61 million, up 18 percent from the year-ago quarter but down markedly from the previous quarter's $123.8 million. The company halved its fourth-quarter revenue expectations in June.

"This quarter has been a challenging one for Handspring," CEO Donna Dubinsky said in a conference call Wednesday afternoon. "I believe we've managed well through this difficult climate," she added, pointing to the company's fiscal year revenue of $370.9 million, up 264 percent from last year's revenues of $101.9 million, as well as to the company's reduced operating expenses.

Moreover, the company said it expects to reach profitability for its line of organizer products by the end of the second quarter, and company-wide profitability by the end of the next fiscal year.

But the numbers for the most recently ended quarter was hardly cause for celebration. Among the factors bogging down Handspring were a $26.8 million inventory charge and a decline in its margins from 31.8 percent to 12.6 percent.

Handspring attributed the lower margins to the pricing structure it has been forced to adopt in order to compete with Palm, which reported a $153.6 million loss in June. In April, Palm, the No. 1 handheld maker, began slashing its prices after revealing that it was sitting on $300 million of unsold inventory.

Handspring expressed confidence that it can boost its margins going forward, projecting margins in the 8 percent to 9 percent range for the next quarter as a result of continued price cuts. The company predicted that the December quarter will see margins rise back to the 23 percent or 24 percent level.

Handspring also is working on a new line of devices with integrated wireless capabilities, which should eventually bring margins into the 30 percent range, according to Dubinsky, who declined to provide many details about the new wireless devices, such as what technology they will use, how much they will cost or whether they're intended for consumer or business users.

"You will hear more from us about our first integrated wireless product before the end of the calendar year," Dubinsky said. She noted also that wireless is the only area for which the company is continuing to add staff.

However, wireless has proven to be somewhat of a challenge for Handspring. On Monday, the company reduced the price of its VisorPhone, a product that transforms a Handspring Organizer device into a cell phone, from $250 to $49.

Ed Colligan, who promoted from VP of sales and marketing to COO on Wednesday, admitted that the VisorPhone had not met expectations. He said, however, that the product line had provided Handspring with a valuable learning experience in wireless as it strives to build its next generation of products.

In after-hours trading, shares of Handspring were up 38 cents, or 9.34 percent, to $4.45.