Dec. 18 (Bloomberg) -- Palm Inc., the maker of the Treo e-mail phone, forecast a wider loss than analysts had estimated after customers defected to the BlackBerry and iPhone. The shares plunged 11 percent in late trading.

The third-quarter loss will be 14 cents to 16 cents a share, excluding costs such as stock compensation, Palm said today in a statement. Analysts on average had projected a loss of 5 cents, according to a Bloomberg survey. A year earlier, Palm had a profit of $11.8 million, or 11 cents.

Palm has trailed BlackBerry maker Research In Motion Ltd. in updating product designs. Sunnyvale, California-based Palm said this month that it failed to get a new Treo model certified for delivery in the second quarter, causing it to miss forecasts. The company also faces new competition from Apple Inc., which released its iPhone in June.

``This is horrible,'' said Pablo Perez-Fernandez, an analyst with Global Crown Capital in San Francisco. He only advises investors to buy Palm shares if they plan to hold the stock long term. The company's product design ``is just too old to compete,'' he said.

The second-quarter loss was $9.63 million, or 9 cents a share, compared with a profit of $12.8 million, or 12 cents, a year earlier, Palm said today. Revenue fell 11 percent to $348.6 million in the period ended Nov. 30.

Sales Forecast

Sales this quarter will probably drop to between $310 million and $320 million, the second straight decline, the company said. The forecast missed the $357.6 million estimate of analysts. Sales were $410.5 million a year earlier.

Palm fell 64 cents to $5.29 in extended trading after the announcement. The shares, which have lost more than half their value this year, gained 28 cents to $5.93 at 4 p.m. New York time in regular Nasdaq Stock Market trading.

Palm also said it would stop giving forecasts for sales and profit.

``Management is signaling they have no visibility,'' Perez- Fernandez said. ``This is a really bad report.''

Chief Executive Officer Ed Colligan said this month that higher warranty-repair costs and increased demand for lower- priced products cut into profit last quarter. On Dec. 13, Palm said it will trim an unspecified number of jobs to slash costs.

``We did not execute as well as we need to,'' Colligan said today on a conference call. The company will go through a ``fundamental transformation'' to improve its business, he said.

Design Shakeup

To improve its designs, Palm brought in Jon Rubinstein this year as an executive chairman in charge of product development. Rubinstein, who had run Apple's iPod business, joined the company as part of a deal with buyout firm Elevation Partners. The firm bought a 25 percent stake in Palm.

Research In Motion, based in Waterloo, Ontario, will probably report that sales almost doubled last quarter to $1.65 billion, according to estimates compiled by Bloomberg. The company is scheduled to release earnings Dec. 20.

Palm's profitability suffered after the company began selling cheaper devices to appeal to a younger and broader audience. Sprint Nextel Corp. started offering Palm's $99 Centro phone last quarter, and sales of the device have been higher than expected, the company said. The Treo typically costs $199 with a monthly contract.

Customers bought 686,000 phones last quarter, down from 689,000 in the previous period, Palm said. The average price for a Palm phone fell 17 percent from the previous quarter to $359.

It will probably take until late 2008 before phones designed under Rubinstein become available, said Lawrence Harris, an analyst at Oppenheimer & Co. in New York.

To contact the reporter on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: December 18, 2007 18:07 EST