Handspring Losses Lower Than Expected

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Handspring today announced financial results for its most recent fiscal quarter, which ended December 28, 2002. The company had $47.8 million in revenue for the quarter, which included $31.9 million in communicator sales and $15.9 million in sales of organizers and accessories. Total revenue for the second quarter was down $6.3 million from the previous quarter and down $22.7 million from the same quarter a year ago.

Though revenues are down, expenses for the quarter were down too. The company reduced expenses by 34% to $60.4 million.

Handspring had a pro forma net loss of $10.0 million for the quarter, or 7 cents per share, improved from $14.4 million or 12 cents per share a year ago. This excludes amortization of deferred stock compensation and intangibles.

Following GAAP, which does include these charges, it posted a net loss of $12.3 million, or 8 cents per share, a significant improvement from a loss of $19.8 million or $0.16 per share in the same quarter a year ago. Analysts had expected the company to lose 7 cents per share.

While this shows improvement, it certainly doesn’t fulfill the prediction CEO Donna Dubinsky made last July that her company would be profitable by the end of the year.

Leases

A severe problem that has been hanging over Handspring’s head has been some very expensive leases the company signed during the dot-com boom. These were for buildings that the company doesn’t plan to use and were going to cost it about $350 million over the next 12 years. Today, the company has announced an agreement to restructure these leases. It will have to pay over $65 million and issue to the landlord warrants to purchase 10 million shares of Handspring stock.

Before this lease restructuring, the company had $110.0 million in total cash and restricted investments. However, it will have to spend much of this to restructure the leases.

The Future

“While our long term outlook remains positive, we see a number of challenges in the next quarter that make us cautious for our near-term business outlook,” said Ms. Dubinsky.

The company’s executives say they expect that revenues from its non-smartphone products will continue to drop, but this will be at least partially offset by increases in sales of its Treo communicators.

Handspring is also working to reduce expenses by layoffs, reducing the cost of making each handheld or smartphone, and, of course, the already mentioned lease restructuring.

In a conference call after these results were announced, Ms. Dubinsky said she hoped the company would be profitable by the end of 2003. “Handspring is now better positioned to move toward our goal of profitability by the end of the calendar year,” she said.

Still, investors aren’t happy with this news. The stock has dropped from $1.10 to $.99 in after-hours trading.

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