Palm yesterday issued a profit warning for its current fourth quarter, and also announced that its proposed merger with wireless infrastructure provider Extended Systems has been scrapped.

Palm expects revenue for the fourth-quarter – ending on June 1 – to be in the range of $140 to $160 million, down from its previous forecast of $300 to $315 million. Palm reported revenue of $350 million in the fourth quarter of fiscal 2000.

The company's new m500 line of handheld computers is shipping later than planned, so distributors, retailers and resellers cannot reorder in Palm's fourth quarter, Carl Yankowski, Palm's CEO, said. That delay stalled sales of existing products in all regions, he said.

The delay in shipments accounts for most of the revenue shortfall, but the problem has been compounded by the slowing US economy, he added.

The California-based company is due to report its results during the week of June 25.

Palm cancellation of its merger with Extended Systems is a further setback. The merger had been valued at $264 million and was expected to help Palm boost the popularity of its handheld computers among corporate users. In a joint statement issued yesterday, the companies said they have "mutually and amicably" agreed to call off the merger. They cited the slowing economy and market conditions, and said the move is in the interests of the companies and their shareholders.

Palm announced its plan to acquire Extended Systems in March, part of an ongoing effort to extend sales of its handheld devices beyond individual users and into large corporate accounts. Extended Systems makes infrastructure software that helps make corporate software applications accessible from portable devices like Palm's handheld computers.

The decision to cancel the merger is "disappointing", Yankowski said in a statement. The company will continue to target the corporate market through partnerships and alliances with vendors, including Extended Systems, he said.

The deal had been expected to close in June. Under terms of the cancellation agreement, neither company will be required to pay a merger termination fee, the companies said.

Palm and Extended Systems will continue to jointly promote the use of Palm's devices and Extended Systems' mobile infrastructure software to corporate customers.