Palm has issued a profits warning for its third quarter, which ended February 28.

The company blames weak sales of its handheld devices to corporate users for its problems.

Palm CEO Eric Benhamou said: "Economic uncertainty weighed more heavily than we originally anticipated on both the consumer and enterprise segments of the handhelds industry."

Palm now expects revenue will total between $205-$210 million - $20 million short of the $230 million it originally expected. Analysts observe that the corporate market for handhelds has stagnated.

The news comes as Palm prepares to finalize the split between its hardware-manufacturing and software-development wings. Software development will be handled by PalmSource, which is scheduled to be spun off in the coming months as a separate company headed by CEO David Nagel.

The handheld/PDA market has become very competitive. Discussing Palm's plans, Nagel told Silicon Valley News last week: "What has been a challenge is that this is become a very competitive space. Microsoft and Symbian have become competitors. So we have to continue to innovate."

Palm will report its full third-quarter results on March 20. Its shares currently trade at $10.55.