In addition, the company expects to report a net loss in the fourth quarter of approximately $0.08 per share.

Pro forma operating expenses in the fourth quarter are expected to increase to $160 million to $165 million as the company spends to launch its new products and stimulate demand in the channel. Palm plans to reduce its operating expenses through a series of steps that are expected to take full effect in the first quarter of fiscal 2002, resulting in savings of 10 percent to 15 percent from expected fourth quarter levels. The company
also expects to incur a one-time charge in its fourth fiscal quarter of 2001 associated with various cost-cutting measures.

Based on its revised outlook, Palm is adjusting its business model and focusing on balance-sheet management to ensure it emerges a stronger company when economic conditions improve. The company plans to reduce its work force by approximately 250 employees and contract workers. In addition, the company is postponing construction of its new corporate headquarters in San Jose, Calif., which was scheduled to begin this month, and is re-evaluating its real estate needs and strategy with the goal of reducing or eliminating cash requirements associated with real estate.

"Through these actions -- combined with our pipeline of powerful and innovative new products, services and Palm OS improvements -- Palm will emerge from this period of economic turbulence and product transition as an even stronger company and a leader in mobile and wireless solutions. We will continue to invest in R&D to drive value-added solutions that reach new customers and new markets, which we're confident will generate growth in our category," said Yankowski.