Palm slapped for its grand ambitions

Palm has become a victim of its own optimism. Buoyed by strong consumer demand for its products and double and triple growth in shipments at times, the company expected to ride out the U.S. economic downturn in style. Palm must now deal with a bloat of excess inventory, cost-cutting measures, and layoffs. The company is experiencing the downside of being the market leader, as nearly every other competitor is trying--often successfully--to take market share away from Palm. Several financial analysts said the No. 1 handheld maker will need to shift quickly to adjust to a market in which sales are falling to levels seen a year ago. Price cuts and lower profit margins could materialize. A number of financial institutions reduced their expectations Wednesday based on the company's outlook, though some analysts urged investors to stick it out, saying that the handheld market is not fading away and that Palm's market-leading position should help the company recover. On Tuesday, Palm beat analyst estimates for its third quarter by a penny. At the same time, it reduced revenue expectations for the current quarter to between $300 million and $315 million--far below the $573 million previously predicted by Wall Street. The company now expects to lose 8 cents per share for the quarter, despite measures to trim 10 percent to 15 percent of operating costs. Cost-cutting measures include reducing its work force by 10 percent to 15 percent, or 250 employees and contract workers. In addition, it will postpone construction of its new corporate headquarters.