Psion puts faith in new model as profits slump

A profit warning from Psion, the hand-held computer maker, failed to leave a permanent dent in the company's share price yesterday after David Potter, its chairman and founder, boasted that the new Series 5 model was "walking off the shelves".

Shares in the company had a volatile session but ended the day higher despite Psion warning that the continuing strength of the pound and the impact of the Series 5 launch on sales of existing models would mean full- year profits failing to reach last year's pounds 16m level. The share price, which has fallen 25 per cent in the last three months, opened 35p lower at 292p, before rising to 338.5p and falling back to 337.5p, 10.5p higher on the day.

Mr Potter denied that there had been serious production problems with the Series 5, though there had been small difficulties with one supplier of plastic parts. He said the group would meet its 40,000-unit target by the fourth quarter.

The Series 5, which incorporates the group's new 32-bit operating system and cost almost pounds 30m to develop, has the power of a large lap-top and a touch screen operated by a stylus. It will provide electronic mail, access to the Internet and the ability to incorporate mobile telephone technology.

"We are well past the transition stage," said Mr Potter. "I am delighted to say this product has gone through the sound barrier. Reviews and reception has been terrific. The problem is meeting demand. Demand is so high that there is no stock left. We never said at the time of launch that we had put legs on the Series 5, but we must have - it is walking off the shelves."

Psion's half-year results to June were less impressive. Pre-tax profits fell 38 per cent to pounds 4.1m on sales 20 per cent lower at pounds 64m and gross profit margins a full 5 points lower. Strong growth in Continental Europe, where sales rose 55 per cent to pounds 23m, was offset by a pounds 3m hit to profits from the stronger pound, a 54 per cent rise in research costs and extra staff, and falling sales in the US.

Retailers, particularly in the UK, had been destocking the Series 3 organiser in the first quarter in readiness for the launch in June of the Series 5, which also badly affected results. Sales in the UK rose just 8 per cent to pounds 28m. Mr Potter said the UK destocking was reversing as retailers recognised that the Series 5, priced well above the Series 3 at up to pounds 500, was targeted at a different market.

He said a pounds 100 cut in the price of the Series 3 model to pounds 299 would help that differentiation. Although sales in the second half would be stronger, the transition to the 32-bit technology and the strong pound would mean profits for the year would fall short of last year's levels.

While Mr Potter was "paranoid" about competition and the US remained a difficult market, he said there was no similar model to the Series 5 and that Psion's operating system EPOC32 was superior to Windows CE, the Microsoft operating system for hand-held computers.