Palm Inc
posted a smaller-than-expected loss on sales of its Pre smartphone, but a tepid second-quarter sales forecast and a plan to raise fresh capital helped snuff out a rally and send shares down 2 percent after hours on Thursday.

Palm has staked its future on devices based on its webOS platform, such as the Pre and its recently announced Pixi device. It launched the Pre -- which competes with Apple Inc's iPhone and Research in Motion's BlackBerry -- in June to strong reviews.

Palm forecast second-quarter revenue of $240 million to $270 million, compared with an average forecast for non-GAAP revenue of just over $345 million. It forecast fiscal 2010 revenue of $1.6 billion to $1.8 billion, versus Wall Street's expectation of $1.6 billion.

I think they had a really strong 1Q. Obviously, well above expectations, said Avian Securities analyst Matthew Thornton.

But when you back out the first-quarter upside and the full-year guidance that they provide, then there really isn't much upside for the last three quarters. Of course, 2Q is going to be down.

Thornton said the company's plan to raise capital also hurt the stock.

Palm said it plans to sell 16 million shares of common stock. Elevation Partners, which already owns a sizable stake in Palm, expects to buy $35 million worth of stock in the offering.

Palm said it shipped 823,000 smartphones in the fiscal first quarter, with many Wall Street estimates in the 700,000 to 800,000 unit range.

An early pioneer in handheld devices, Palm has been surpassed by rivals such as Apple and Research in Motion. Competition in the smartphone category is growing fiercer with competitors entering the market and more handset companies developing products based on Google Inc's Android platform.

Palm reported a net loss applicable to common stockholders of $164.5 million, or $1.17 a share, in its fiscal first quarter ended August 31, versus a year-ago loss of $41.9 million, or 39 cents a share.

Excluding items, the company posted a loss of 10 cents a share, beating analysts' average estimate of 25 cents according to Reuters Estimates.

Revenue on a non-GAAP basis was $360.7 million versus Wall Street's average forecast of $289.1 million.

The maker of the Pre smartphone, whose stock quadrupled this year as investors bet on the popularity of the mobile device,

The Sunnyvale, California-based company's stock fell to $14.04 from its close of $14.44 on Nasdaq. It had risen to $15.30 in the minutes after the closing bell.

(Reporting by Gabriel Madway; Editing by Richard Chang, Leslie Gevirtz)