The company's shares fell 14 percent in after-hours trading on Thursday.
Taking into account Thursday's after-hours losses, Palm will have lost half its market value since the year began.
The window is closing, there's no question. They've got cash burn going against them and they've got competition going against them, said Avian Securities analyst Matt Thornton. I just don't see what changes here.
Palm executives told analysts on a conference call that fourth-quarter revenue will be less than $150 million, as the company helps its carrier partners, Sprint Nextel Corp
Analysts had been expecting revenue of about $306 million, according to Thomson Reuters I/B/E/S.
The company shipped a total of 960,000 smartphones during the third quarter ended February 26, but sell-through -- which reflects how many devices actually end up in consumers' hands -- totaled 408,000 units, lagging the 600,000 units or more many analysts expected.
The May quarter guidance is the key number; it's very low indeed, said Tero Kuittinen of MKM Partners, an institutional equity trading and research firm.
For the current quarter, Palm also forecast a gross margin in the mid-teens compared with a Wall Street estimate of 26 percent.
Our recent underperformance has been extremely disappointing to me personally, Chief Executive Jon Rubinstein said on a conference call with analysts.
Rubinstein downplayed talk that has been swirling around the company for months about an acquisition of Palm, with Microsoft Corp
But Thornton expects Palm to be acquired or taken private.
Palm has struggled to generate interest in its Pre and Pixi smartphones and is facing competition from Apple Inc
It reported a net loss attributable to common stockholders of $22 million, or 13 cents a share, in the fiscal third quarter, compared with a year-ago loss of $98 million, or 89 cents a share.
Excluding items, the company's loss was 61 cents a share, bigger than the average analyst estimate of 42 cents a share, according to Thomson Reuters I/B/E/S.
Despite expanding its carrier network to Verizon Wireless -- a venture of Verizon Communications Inc
Rubinstein said there were no changes to planned carrier launches, but declined to provide any more details. AT&T Inc
Third-quarter revenue came in at $349.9 million, above the company's previous estimate of $300 million to $320 million. Non-GAAP revenue totaled $366 million, well above Wall Street's average estimate for sales of $316.2 million.
But the company said the high-than-expected revenue was merely due to a change in the timing of when it booked sales. Average selling price in the third quarter was $367, compared with $375 in the previous period.
Last month, the company slashed its third-quarter and full-year revenue targets on slower than expected consumer adoption.
The shares of Sunnyvale, Calif.-based Palm rose 5 percent to close at $5.65 on the Nasdaq on Thursday, but fell 14 percent to $4.84 in extended trading.
(Editing by Matthew Lewis, Carol Bishopric and Andre Grenon)