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Shares of Palm Inc. plunge 43%

Price drop follows firm's warning of pared projections

SAN JOSE, Calif. — Shares of Palm Inc. plunged 43 percent Wednesday after the leading handheld computer maker said slowing sales forced it to reduce its fourth-quarter projections and announced plans to cut about 250 jobs.

The warning came as Palm said it met Wall Street's third-quarter expectations.

But the decelerating economy is expected to lead to flat sales growth in the fourth quarter, company officials said.

"Palm has recently begun to feel the effects of the deteriorating macroeconomic environment, resulting in reducing incoming order rate amid signs of what appears to be a sector slowdown," said Palm chief executive Carl Yankowski.

Shares of Palm were down $6.72 to $8.78 in trading on the NASDAQ.

Rival handheld device makers fell as well. Handspring Inc. fell $4.38, or 27 percent, to $11.81, while Research in Motion Ltd. dropped $3.63, or 15 percent, to $21.05.

Wall Street analysts have been anxious to see what Palm officials have to say about its outlook — how the souring economy may be dampening even the fast-growing sector of personal digital assistants.

The worldwide market for PDAs is forecast to grow from 9.4 million units in 2000 to 33.7 million in 2004, according to Gartner Group Dataquest. Palm devices and other PDAs using the Palm operating system enjoyed more than 70 percent of all sales in that category in 2000.

"We're trying to figure out if they're seeing a slowness because of the economic slowdown," said Lehman Brothers analyst Joseph To. "During a recession, these kinds of devices are usually affected, so we're just being a little more cautious."

Last week, To lowered his revenue projections for Palm from $2.5 billion to $2.4 billion for the fiscal year.

For the three months ended March 2, Palm lost $1.9 million, or less than one cent per share, compared with earnings of $11 million, or 2 cents per share, in the year-ago period.