Handspring Drops on Lehman Downgrade

Handspring (Nasdaq: HAND) fellUS$2.44 to $15.06 in morning trading Thursday, after Lehman Brothersdowngraded the stock to buy from strong buy.

Lehman analyst Joseph To reportedly told clients that the decision by Handspring competitorPalm (Nasdaq: PALM) to slash prices and get more of its handheldcomputers into stores could force Handspring to cut prices on itsown wares.

To reportedly said that he expects the pricing war to heat up with Father’s Day and graduation season approaching.

The analyst reportedly predictedthat shares of both Handspring and Palm will come under pressure if Handspringdecides to engage Palm in a price war. He expects Handspring shares to tradein a range of 2 to 5 times calendar 2001 revenue, down from 4.7 times revenue currently.

Palm shares traded at $8.55 Thursday morning, down $1.20. Though Palm and Handspring are competitors, the pair’s fortunes are linked,and the companies are working together to develop new products. The two lastmonth renewed a license agreement that lets Handspring continue to use the Palm operating system through April 2009.

Handspring, started by former Palm executives, went public a year ago.

Last month, Handspring reported a 261 percent year-over-year jump inrevenue, as strong demand for new high-end products boosted sales. Thecompany posted a net loss of $27.2 million, or 26 cents per share.

Palm, meanwhile, has announced plans to lay off about 250 employees andcontract workers, and has postponed construction of a new headquartersbuilding.

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