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Retailers Paint Rosy Picture For Palm

NEW YORK — With mounting inventory and delayed shipments of new products, Palm halved its fourth-quarter revenue outlook this month, but despite this many retailers were less pessimistic and anticipate healthier sales moving forward.

Regional retailers said their sales of Palm and other brands continue to climb. Additionally, a leading retailer in computer portables noted, “Palm sales were not great in January and February, but right now things have turned around considerably. The long and the short of it is, don’t nail the coffin shut yet.”

The leading handheld merchandiser noted sales were brisk in both the new Palm m500 and color m505 models and were also strong for old models, which are being discounted.

Tim Hess, computer products buyer for R.C. Willey, Salt Lake City, said its Palm sales have not slowed down.

“We’ve had good success selling their older models because the discounted prices are very attractive, and this brought in a new layer of customers who couldn’t afford them before,” he said.

A merchandise manager for another large regional chain said Palm sales were up, as is the entire handheld category. “It’s the one bright spot we have in computers,” he said.

Palm recently announced it expected revenues to reach only $140 million to $160 million for its fourth quarter, down from an original revenue forecast of $300 million to $315 million.

This compared to revenue of $350 million in the fourth quarter of fiscal 2000 and $471 million in the third quarter of fiscal 2001.

Palm cited delayed shipments of its new m500 family of handhelds and stalled sales of its existing products, as consumers waited for the new products to ship.

Analyst Alex Slawsby of International Data Corp., Framingham, Mass., said that while Palm’s new m500 is now shipping in significant volume, the color m505 has not achieved full-volume shipping.

“The channels have a significant amount of inventory that is sitting there and that’s causing a problem. And Palm and contract manufacturers now have a large amount of new product and can’t move it into the channel because the channel can’t move out what it has,” Slawsby said. “We expect them to be working through it, but Palm had to take a $300 million charge and it will still leave them with $100 million in old inventory at the end of the fourth quarter. There’s a chance they could burn through a large amount of their cash, and by early fall, they would be out of cash. They need to clear the inventory and get the new devices out in volume.”

Palm also announced that it terminated the proposed acquisition of software company Extended Systems, which it hoped would help move the company into Enterprise bulk volume sales.

In response to Palm’s announced lower revenue expectations, leading competitor and licensee, Handspring, said it had no comment. Casio said its sales were still strong, and Sharp said it did not intend to alter its plans to ship a new Linux-based handheld to the United States this fall.

While regional consumer electronics stores continue to experience healthy Palm sales, several regional buyers complain that they do not get equal treatment to national chains, which can buy direct.

Said one retailer, “We don’t get any advertising funding, and there’s very poor communication. We get late notice on price drops and late notice on promotions like new rebates. And we can’t buy displays. It’s an adversarial relationship, but the business is growing.”

Another retailer echoed, “If you are a national account you get all of the displays. I know we are selling more per store than any national accounts, but since we are not national, Palm doesn’t recognize that we exist. I’ve offered to purchase display units and they won’t allow it. That kind of arrogance is very counterproductive.”

Palm did not return TWICE phone calls by press time.