Palm warns on Q3 sales, shares fall 11 percent

NEW YORK (Reuters) - Palm Inc (PALM.O) warned of weaker-than-expected quarterly revenue due to lower demand for its older phones, a weak economy and late U.S. shipments of its Treo Pro, sending shares down 11 percent in extended trade.

The company forecast continued margin pressure from legacy products in the current quarter even as it prepares to launch the new Pre phone, throwing cold water over investor optimism that the touch-screen smartphone could quickly revive Palm.

Palm also said it was looking at ways to bolster its capital position, while it aims to strike back at rivals like Apple Inc's (AAPL.O) iPhone and Research in Motion Ltd's (RIM.TO) (RIMM.O) BlackBerry.

"The much-anticipated launch of the Palm Pre remains on track for the first half of calendar year 2009, but as expected we've got a difficult transition period to work through," Palm Chief Executive Ed Colligan said in a statement.

In preliminary results for its fiscal third quarter ended February 27, Palm said it expected revenue to fall to a range of $85 million to $90 million.

That compared with the average analyst forecast for revenue of $155 million, according to Reuters Estimates. The company is due to report its quarterly results on March 19.

Palm said its cash, cash equivalents and short-term investments balance is expected to be between $215 million and $220 million at the end of the third quarter.

The company said it had sufficient cash but intends to strengthen its working capital due to the difficult economy and the launch of the Pre.

Thus Palm said it is evaluating options such as exercising its right to remarket some common shares that are underlying preferred stocks and warrant units held by private equity firm Elevation Partners.