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Palm Pre Palm Pixi Palm Pre Plus (CDMA) Palm Pixi Plus (CDMA)

The Sunnyvale, Calif.-based company said its flagship Pre and Pixi devices, which were launched last year, haven't paid off as hoped. It shipped 960,000 units in the quarter, but sold only 408,000 handsets due to declining sales of its older handsets, leaving about 552,000 smartphones left in stores. By comparison, rival Apple sold 8.7 million iPhones in the same period.

Palm said its revenue rose to $350 million, up from $91 million a year ago, but at a time when the struggling handset maker was waiting to release its flagship devices.

"Our recent under performance has been very disappointing, but the potential for Palm remains strong," said Jon Rubinstein, Palm's chief executive.

Once a pioneer in the handheld business, Palm has been beset by competition from BlackBerry maker Research in Motion, which dominated the corporate segment, and Apple's iPhone, which charmed mainstream buyers. The company has also been hurt by heavy ad campaigns by carriers for new smartphones running Google's Android software.

After private-equity firm Elevation Partners took a stake in the company several years ago, Palm developed WebOS, its new mobile operating system and the backbone for its new portfolio of devices. Though the new phones had won critical praise, they have struggled to attract the attention of buyers in the crowded smartphone market.

Palm initially offered the Pre and Pixi through Sprint and the Pre Plus and Pixi Plus through Verizon in late January, but neither products sold as well as expected.

In a sign of how weak sales have been, Verizon has already discounted the Pixi Plus by 20 percent and is offering a buy-one-get-one-free deal with a two-year contract. Sprint has also cut the price on a Pixi to $50, a 50 percent discount.

In an email to employees last week, Rubinstein implied that part of the company's recent struggles are due to Verizon, which delayed the release of their new handsets, and that the carrier would attempt to correct the issue by adding more advertisements and nearly 200 staffers to train Verizon sales representatives.

"Verizon acknowledged that their execution of our launch was below expectations and recommitted to working with us to improve sales," said Rubinstein.

Palm is also making backup plans, people familiar case say, by prepping the Pre and Pixi for an AT&T release in the coming months. But some analysts say Palm may now be too small of a player in the smartphone industry. Speculation has swirled that the company -- with its large portfolio of patents -- may be a target for acquisition.