Release Date: 2009

From:boston.com

By: boston.com

keyword: blackberry, iPhone

NEW YORK—Shares of smart-phone maker Palm Inc. fell in Wednesday premarket trading after the company said it expects a steep slide in fiscal third-quarter revenue, hurt by flagging demand for its older model phones.

Palm, which is due to release its new Pre smart phone in the first half of the year, said late Tuesday it expects sales of $85 million to $90 million, well below the average Street projection of $157.8 million, according to a Thomson Reuters poll. The company's third quarter ended on Feb. 27.

Analysts expressed concern about the company's cash flow, expecting Palm to look for more capital as it ramps up marketing for the Pre. Palm said Tuesday it used $95 million to $100 million in cash during the quarter ended in February.

"We expect the stock to be down initially in reaction to the cash burn and a potentially dilutive" stock offering, Thomas Weisel analyst Matthew Sheerin told clients in a note late Tuesday.

Shares of the Sunnyvale, Calif. company tumbled 63 cents, or 8.5 percent, to $6.75 in premarket trading.

Analysts expect the eagerly anticipated Pre, which Palm previewed in January to mostly positive reviews, to help lift the company out of its slump. But doubts remain about the phone's ability to compete with other sophisticated handhelds, like Apple's iPhone.

"The Pre has the potential to become a major contender in the smart phone market and return Palm to relevancy," Needham & Co. analyst Charlie Wolf told investors in a note Tuesday.

But he reiterated a "Hold" rating on the shares, cautioning that "by the time the Pre launches, there could be several new smart phones running on Googles Android operating system as well as a major refresh of the iPhone."

Piper Jaffray analyst T. Michael Walkley took a more confident stance on the Pre, upgrading Palm shares to "Buy" from "Neutral."

"Despite the challenging (macroeconomic) environment we anticipate this unique product will resonate with consumers," he told clients in a note. "We believe the ramp of Pre smart phones will result in a significant earnings recovery."