Palm Inc suffered a sharp rise in losses during the three months from September.
The company, the world's leading handheld computer maker, returned net losses for the period of $25.2 million, a marked downfall on its figure of $20.3 million net profits during the same period last year. Revenue during the period also fell sharply to $290.6m from $522.2m a year earlier.
Eric Benhamou, Palm chairman, said that profits were hit by the softening US economy, which has slackened demand, as well as by a price war with its rival Handspring.
However, the earnings were above the company's own November predictions, and Benhamou said revenues were much higher than they had been during the three months from June.
"This quarter's significant increase in revenue and improved results over the last quarter reflect that we have gained traction in the marketplace and restored operational rigor," Mr Benhamou told BBC Online.
Palm predicted that its earnings would come in somewhere between $250m and $260 million over the three months from December to February, its fiscal third quarter.
This should then bounce back to between $290m and $300m during the following three months to May 2002, by which it should have reached an operating break-even point.
Mr Benhamou is also currently the company's chief executive after the former chief, Carl Yankowski resigned last month.