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Palm to cut 19 percent of its 1,170 employees

NEW YORK (Dow Jones/AP) — Handheld computer maker Palm Inc. will immediately let go of 19 percent of its nearly 1,170 workers, the company said Friday.

Palm spokeswoman Marlene Somsak said the work force reduction is across the board and is a reflection of the economy.

Also Friday, J.P. Morgan analyst Paul Coster downgraded his rating on the stock to "underweight" from "neutral."

In a research report, Coster said near-term prospects look "bleak" for Palm given uncertain conditions and a broad decline in demand for personal digital assistants or PDAs.

Moreover, the analyst said Palm's newest PDA, the Tungsten W, isn't "sufficiently differentiated" to spark consumer or corporate demand. He said the device, which is targeted at the business market, lacks "best-in class and server-side software needed to win market share at this time."

Coster said the layoffs are in response to market conditions and not just "good housekeeping."

He added that "much of the cuts may come from the PalmSource division, jeopardizing the planned spin-off somewhat."

Coster noted that he sees no positive catalysts for Palm's stock in the next three to six months and that preserving cash at Palm now becomes a concern in the event of excess inventory this quarter.