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Psion plunges on warning
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October 27, 2000: 9:27 a.m. ET
Handheld computer maker says full-year profit to fall below expectations
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LONDON (CNNfn) - British handheld-computer maker Psion PLC on Friday became the latest company to blame the weak euro for a slump in profit. Its warning that currency factors and higher costs for parts would pull annual profit "well below" market forecasts sent its shares down nearly 27 percent.
Psion (PON), the firm that put pocket-sized computers in the hands of technology addicts across Europe, said the effects of changing currency rates, rising component costs, and changes in the PC card modem market would reduce profitability in the year 2000.
 The London-based company's shares tumbled to 425.5 pence following the announcement, reducing the company's market capitalization to less than £1.8 billion ($2.6 billion).
Declining from a peak of 1,500 pence reached amid the rush to get into technology stocks in March, the shares were ejected last month from the FTSE 100 index, the benchmark for the London stock market.
The warning came a month after Santa-Clara, Calif.-based Palm Inc. (PALM: Research, Estimates), a direct rival to the U.K. firm, reported first-quarter earnings that were twice as high as analysts expected.
Psion's statement and the subsequent slide in its shares raised trader's concerns about the prospects for the planned initial public offering of the firm's handheld technology joint venture Symbian Ltd.
"The underlying business is Symbian, which is probably worth around 450 pence on its own. I would have thought we have seen the worst of the downside at 395 pence," Reuters quoted a dealer as saying.
Chief Executive David Levin repeated that the plan to float Symbian would await good market conditions and the launch of EPOC, an operating system Psion is developing to control the coming generation of portable devices combining data management, telephony and Internet access, Reuters reported. EPOC products, to which Symbian owns the rights, will compete with handheld computerized devices based on Microsoft Corp's (MSFT: Research, Estimates) Windows system.
Currency mismatch
The company said the weakening value of the euro against the U.S. dollar had hit this year's profit because it buys most of its components in dollars, but sells a large proportion of its products in euros. Over the year's first three quarters, currency exchange costs left the profit margin at the handheld-computer division about 4 percent lower than in the same period of 1999.
Falling margins in the PC card modem business and rising costs of critical components, especially memory, also hit the firm. Higher component prices are expected to cut margins by 2 percent for the second half of the year.
Psion has traditionally generated operating profit margins of around 30 percent across its businesses. The margin, a measure of a company's profitability, expresses operating profit as a percentage of sales.
The firm said that at its PC card modem unit, Psion Connect, revenue was declining but still in line with expectations, but the division's distribution business "is now experiencing a rapid decline". Psion said it would take a charge of some £2.5 million for restructuring costs at the unit.
Psion will also said it would incur £2 million of expenses to integrate its purchase of wireless data systems firm Teklogix International Inc.
Teklogix accounts for about half of revenues and profits.
Psion is pinning its hopes on new products that should be on the market next year, but analysts said the company would not feel the full benefit of these until later in 2001. 
--from staff and wire reports
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