January 15, 2002 4:20 PM PST

Handspring warns of Treo holdup

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Handspring on Tuesday posted a narrower-than-expected loss for the quarter but warned that a component shortage is slowing the launch of its Treo handheld-cell phone combo device.

CEO Donna Dubinsky said on a conference call that production of the Treo has started at a Solectron plant in Mexico but that the start of manufacturing has "been slower than we would have liked" due to the shortage of a key component.

Dubinsky said that the bulk of the Treos shipped in January will be for Europe. As for the United States, Dubinsky said that Web sales will start next month but that Treos won't hit retail shelves until March.

Handspring executives had previously said that U.S. sales of Treo would start this month. The company is counting on the new device to rev up sales after a difficult past year.

In an interview, Dubinsky would not identify the component in question but said it is more of a custom part, not something for which there is an industrywide shortage.

And although she did not give a time frame, Dubinsky also said on the conference call that Handspring eventually plans to stop making traditional organizers in favor of focusing on wireless devices, such as the Treo.

"We are a company that is transitioning out of the organizer business and into the communicator business," Dubinsky said. "At some point, we will have transitioned out of the organizer business."

Meanwhile, the Mountain View, Calif.-based company reported a loss of $19.8 million, or 16 cents per share, including charges on revenue of $70.5 million for its fiscal second quarter that ended Dec. 29. Sales were up 15 percent from the prior quarter, but down 39 percent from a year earlier. The company's loss was also wider than the loss of $15.2 million, or 15 cents a share, from the same quarter a year earlier.

Excluding amortization and other charges, the handheld maker lost $14.4 million, or 12 cents per share, compared with a loss of $7 million, or 7 cents per share, in the same quarter a year ago. On that basis, a consensus of analysts was expecting a loss of 14 cents per share, according to First Call.

Dubinsky noted in a statement that the amount of the inventory in the hands of retailers and distributors at the end of the quarter was within the company's target range.

Handspring shares closed up 8 cents, or 1 percent, at $7.78 on Tuesday. But they took a hit in after-hours trading, dropping to $7, according to Island ECN.

Bernard Whitney, Handspring's chief financial officer, forecast on the conference call that sales in the current quarter will dip to somewhere between $61 million and $66 million, amid what is normally a seasonally weak quarter. For the quarter that ends in June, Handspring expects sales between $86 million and $96 million as availability and sales of the Treo increase.

Excluding charges, the company said it expects to post a loss of 13 cents to 14 cents per share in the current quarter. And in the quarter that ends in June, the company expects to post results anywhere from breakeven to a loss of 3 cents per share.

Earlier Tuesday, Handspring announced deals with two European carriers--British wireless Company mm02 and Sweden's APE Telecom--to sell and market the upcoming Treo device.

Handspring said more than 20 wireless carriers worldwide have been testing the Treo on their networks.

Dubinsky also told CNET News.com that the company is launching in Europe first because carriers there are moving more quickly to work with the Treo.

"We see a wide range from?carriers" in terms of how quickly they are working to include Treo in their plans, Dubinsky said, adding that she is still hopeful to be able to offer a carrier-subsidized version of the Treo when it goes on sale next time in the United States on Handspring's Web site.

Paul Coster, an analyst with J.P. Morgan Chase, said earlier Tuesday that Handspring is placing a "make or break" bet with Treo.

"They either succeed or fail as a company" with Treo, Coster said. He added that Palm is also counting on wireless devices to boost its fortunes but said Palm is not taking as much of a risk as Handspring.

 

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