Psion shares collapse by 29% after surprise profits warning

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Shares in Psion, the handheld computer company, yesterday lost 29 per cent of their value after the group warned that its full-year profit would fall "well below" analysts' expectations.

Shares in Psion, the handheld computer company, yesterday lost 29 per cent of their value after the group warned that its full-year profit would fall "well below" analysts' expectations.

Becoming the latest hi-tech star to fall from grace, the company's shares tumbled 165p to 410p, as analysts slashed their forecasts for the current year from about £8.5m to "break-even". They also shaved £6m off their estimates for next year.

David Levin, the company's chief executive, highlighted three main contributors to Psion's woes. He said: "It's a problem of C's - components, currencies and particular difficulties at our Connect division."

Like other companies in the sector, Psion has been hit by higher prices for memory components, which are in short supply. It has also seen its margins crumble, hit by the double whammy of the strong dollar, which has in effect driven up purchasing costs, and the ailing euro, which has simultaneously reduced the value of its sales.

The currency impact has caused a 4 per cent decline in margins in the first three quarters of 2000, against their average level of over 30 per cent. Group margins are expected to be eroded by a further 2 per cent in the second half of the year to 31 December because of the increased component costs.

One analyst said: "They [Psion] are obviously beholden to changes in the market ... But what you have got here is a business in transition. If you look at the organiser market, they have clearly lost out to other operators, such as Palm and Handspring in the US, while the PC card market is in permanent decline."

Psion admitted that demand for its card technology for standalone modems, which is produced by its Connect business unit, is drying up fast, as computer manufacturers switch to fully integrated internet connections.

Mr Levin said: "[The business] has begun to decay quite quickly, and that is basically a problem." One analyst commented: "We knew that this was happening, but the market has fallen faster than expected." Of the total £150m sales which Psion produced last year, the Connect division contributed £57m. The company did not reveal to what degree the unit contributed to total group profitability.

Psion said yesterday that it would take a £2.5m one-off charge to restructure the troubled division, in order to try to restore it to profitability by 2001. The reorganisation is expected to lead to 20 administrative and sales job cuts out of a workforce of 80 based at the group's Milton Keynes facility.

Mr Levin said a further £3.5m would be spent on integrating its recent £250m acquisition of Teklogix International, a Canadian rival, including £2m to be charged this year.

Commenting on the group's Symbian operating system business, which it owns in partnership with Nokia, Ericsson, Motorola and Matsushita, Mr Levin said the development of a wireless information device, that will enable handheld computers and mobile phones to link to the internet and send e-mails, remains "on track". Product shipments are expected in the second half of 2001.

Symbian, which is expected to float next year with a price tag of about £5bn, is seen as "the bright hope" for Psion, as its core handheld computer business faces the competitive threat of new players, such as Microsoft.

Mr Levin said yesterday that sales of its handheld products were currently strong. But doubts have been raised in the past about the management's long-term confidence in the business. In March, the group's founder and chairman, David Potter, sold five million shares at £13, close to the top of their value, raised £65m.