Last updated: July 4, 2011 10:37 pm

Psion warns on supply chain problems

Shares in Psion dropped 17 per cent on Monday after the UK-based technology company said it would report a loss of £4m ($6.4m) for the first half of the year.

Psion, a pioneer in mobile computers that now makes handheld devices for workers ranging from delivery drivers to traffic wardens, said it had been hurt by supply chain problems for one product, as well as the stronger value of sterling against the dollar.

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This meant revenue for the first half would be about 4 per cent lower than last time, while it would move from a £700,000 profit to a loss of about £4m. Full-year results would also be below management’s previous expectations.

However, the poor first half would be “partly mitigated” by the launch of the new EP10 device, which will be cheaper to produce than existing products and will allow customers more scope to customise it.

The launch of a product suite using CDMA, a roaming technology used in the US, would spur greater penetration of the American market, the company added.

“It’s disappointing, there’s no question of that,” said John Conoley, chief executive. “But we’ve effectively doubled our addressable market in the US overnight. There is probably $300m-$400m of market in the US that we’ve not been able to play in until now. Even a modest success in the US will make a big difference.”

Psion became well-known for consumer-focused handheld computers in the 1980s and 1990s, and its share price surged to more than £20 during the technology boom.

However, it stopped making consumer devices in 2002 and was forced to embark on a cost-cutting drive after the recent recession. It moved back into profit only last year after reporting net losses for the previous two years.

Ian Robertson, an analyst at Seymour Pierce, said the product launches would boost Psion. “There is hope for the second half,” he said. “The long-term story’s still there.”

Mr Conoley, chief executive since 2008, was still working to turn the company round, Mr Robertson added. The difficulties that caused the first-half loss were probably due to an older product that had been launched by the previous management team, he said.

However, Simon Strong, at Evolution Securities, said that Psion’s performance had fallen short of expectations in recent years. “If they fail to meet their aggressive 5-8 per cent revenue growth forecast for the year, there could be further disappointment down the line,” he said.

The shares fell 15.4p to 74.25p.

FT Comment: Even after today’s steep fall, Psion shares still trade at a forward price/earnings multiple of about 20 times: high for the UK technology sector. Given that its existing products are ageing, this suggests the market is pricing in a successful launch of the new EP10 device, and US market share growth in line with management’s bullish expectations. If results fail to measure up, the shares will come under pressure. The risk appears on the downside.

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