MILPITAS, Calif., March 3 /PRNewswire-FirstCall/ -- Palm, Inc. (Nasdaq: PALM) today announced that its third-quarter fiscal 2003 results will be below the guidance given on its second-quarter results conference call in December.

Revenues now are expected to be between $205 - $210 million vs. previous guidance of $230 - $250 million. Gross margins are expected to be close to 30 percent compared to the low 30 percent range for the two previous quarters. Pro forma operating expenses are expected to be close to previous guidance. Other income/expense will include charges of up to $2.7 million related to the settlement of two legal matters. Channel inventory is expected to be within the company's desired range, and balance-sheet metrics are estimated to meet previous guidance.

The primary reason for the weaker results is lower-than-expected demand at the high end of the market in the United States, in part attributable to continued weakness in Enterprise I.T. spending in the handheld space. Demand for entry and mid-range products has been in-line with Palm's expectations, and demand in Europe was strong for all products. Palm's premium handheld, the Tungsten(TM) T, which has been highly praised by industry experts, comprised a lower-than-expected percentage of the mix during the quarter. The Tungsten T price reduction implemented in early February has helped to spur demand, but not enough to offset market weakness for high-end products.

"Economic uncertainty weighed more heavily than we originally anticipated on both the consumer and enterprise segments of the handheld industry. Despite these challenges, we continue to execute well operationally, and we are fully confident in the magnitude of our long-term business opportunity," said Eric Benhamou, Palm chairman and chief executive officer. "We continue to take aggressive actions to return to sustained profitability, and we remain committed to completing the transformation of Palm into two successful leadership companies in the handheld space."

As discussed during its December investors' conference call, the company expects to record charges in the third quarter related to restructuring actions. The charges are expected to be between $40 - $45 million and will include costs related to rationalizing real estate locations and reassessing the ability to sublease vacant facilities; severance payments related to headcount reductions of approximately 19 percent; and other items related to right-sizing Palm Solutions Group and PalmSource, the two groups that make up Palm, Inc.

In addition, the company expects to take a non-cash charge of approximately $100 million to reduce the carrying value of the 39 acres of land it owns in San Jose, Calif., to the current fair market value. Market conditions for commercial real estate in the Silicon Valley have continued to deteriorate, and the company no longer expects to hold the land as long as would be required to realize the current carrying value.

Palm's quarterly results conference call will be on March 20, 2003. A public webcast will be available at that time on the company's investor-relations site at http://ir.palm.com .

Cautionary Note Regarding Forward-looking Statements

This press release includes forward-looking statements concerning Palm's expected revenues, gross margins, expenses, balance sheet metrics, and channel inventory for its third quarter; and expected charges relating to restructuring, land ownership and legal settlements that Palm intends to book in its third quarter results. These statements are based on Palm's current expectations and are subject to many risks and uncertainties that may cause actual results to be different than current expectations. Those risks and uncertainties include the level of sales, cost of goods sold, expenses, reserves, other charges and balance sheet items as Palm closes its financial books for the third fiscal quarter, including changes in the timing and amount of the restructuring and land charges.

About Palm, Inc.
Information about Palm, Inc. is available at http://www.palm.com/aboutpalm

NOTE: Palm and Tungsten are trademarks of Palm, Inc.

SOURCE Palm, Inc.