Recent Palm Highlights
"Revenue and shipments in the third quarter showed strong year-over-year growth, reflecting a conviction from individual consumers and enterprise customers that Palm handheld computers enhance lifestyles and work productivity, and keep people connected," said Carl Yankowski, Palm's chief executive officer. "Over 1,000 new software applications -- many for enterprise and communications uses -- came to market in the quarter for Palm Powered(TM) devices, demonstrating great long-term confidence in our view of computing. With approximately 150,000 registered Palm developers and more than 8,500 software applications available commercially for Palm OS(R)
handhelds, the market is telling us we've made the right strategic choices and
the right tradeoffs for a superior user experience."

Other recent highlights

-- Palm announced its m500 series handhelds running on its new powerful Version 4.0 operating system, which includes 16-bit color and increased security and has support for telephony. This new high-end product line features a Secure Digital and MultiMediaCard expansion slot and enhanced mobile connectivity -- all in an improved, sleek Palm V-like form factor with a Universal Connector and USB connectivity. The m505 handheld has an energy-efficient color screen that is viewable in all lighting conditions, even in bright sunlight;

-- Palm added a second member to its m100 entry-level family with the m105, which features added memory and software for email and Internet connectivity, plus the new standard Palm Universal Connector with USB connectivity;

-- Palm launched the beta version of the MyPalm(TM) personal mobile portal, reflecting the successful integration of its AnyDay.com acquisition. The MyPalm portal has registered approximately 270,000 users since its beta rollout in late December; and

-- Palm entered into an alliance with Sprint PCS to co-brand and co-market CDMA wireless products and services in North America.

Palm also completed or initiated three acquisitions during the quarter.
They are as follows:

-- In February, Palm completed its acquisition of WeSync. The Portland, Ore.-based company was acquired for its group, wireless and web synchronization capabilities;

-- In March, Palm reached a definitive agreement to acquire Extended Systems Inc. to better meet the needs of the corporate chief information officer and further the company's enterprise offerings. The acquisition, which is expected to close in June 2001, is subject to certain approvals, including that of regulators and Extended Systems' stockholders. Extended Systems provides the software infrastructure companies need to manage multivendor, multiplatform mobile solutions; and

-- Concurrent with the launch of the m500 series, Palm acquired peanutpress.com, which includes a web-based storefront featuring approximately 2,000 titles from many of the major U.S. publishing houses. Through this acquisition, Palm also acquired the Peanut Reader, now called the Palm Reader, a leading eBook reader application for Palm OS handheld devices.

Business Outlook
"Palm has recently begun to feel the effects of the deteriorating macro economic environment," Yankowski said, "resulting in a reduced incoming order rate amid signs of what appears to be a sector slowdown. Based on this, we believe that demand is approximately flat to the fourth quarter a year ago in which our revenues were $350 million. At the same time, Palm is going through the most significant product transition in its history, and we currently anticipate volume shipments of the new m500 series in the last month of our fourth quarter. Taking all of this into account, we expect our fiscal fourth quarter 2001 revenues in the range of $300 million to $315 million."

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.