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Thursday, February 25, 2010, 03:25 pm PT (06:25 pm ET)

Palm stock plummets after poor sales force company to lower guidance

Palm's stock tumbled more than 19 percent Thursday after the handset maker decreased its forecast for third-quarter sales dramatically, citing lower-than-expected demand for its smartphones.

Palm said it expects its sales to be between $285 million and $310 million, well below its previous forecast of $1.6 billion to $1.8 billion. Palm chief Jon Rubinstein said that "broad consumer adoption of Palm products is taking longer" than he and his company had anticipated.

"Our carrier partners remain committed, and we are working closely with them to increase awareness and drive sales of our differentiated Palm products," he said.

According to Forbes, analysts had on average expected Palm to report sales of $424.9 million when it releases its third-quarter earnings on March 18.

Wall Street did not respond well to the news, with the company's stock dropping $1.56, or 19.28 percent, to 6.53 by the closing bell on Thursday.

Palm recently expanded its Pre and Pixi smartphones beyond carrier Sprint to Verizon, with the exclusive Pre Plus and Pixi Plus. The company also has plans to release two devices based on the WebOS mobile operating system on wireless provider AT&T, the exclusive carrier of Apple's iPhone in the U.S.

Palm turned heads in 2009 when it unveiled WebOS with a surprise announcement, earning positive reaction and buzz from the press.

Rubinstein served as Apple's iPod chief until 2006, when he formally retired from the company. In 2007, he was courted by Palm to serve as its executive chairman, and he officially took the role of CEO last summer, coinciding with the launch of the Palm Pre.

Though the Pre got off to a strong sales start, it has failed to gain significant market share in the mobile space.