Psion, the hi-tech company best known for its handheld computers, faced a crisis of confidence in the City yesterday after warning that a collapse in demand for its modems would push its annual profits "well below" analysts' expectations.
The news led to a fall in the company's shares of 165p to 410p, wiping £650m, nearly 30%, off its market capitalisation. Analysts questioned whether the management could deliver on other projects, such as its Symbian venture with the world's leading mobile phone companies.
Psion's chief executive, David Levin, said: "Of course this is disappointing, it's particularly disappointing to me.
"But does it impact one's view of our strategy? The answer is no."
Psion has been hit by a technological shift as an increasing number of laptop computers are manufactured with built-in modems. This has meant that fewer people are buying Psion's detachable PC card modems.
Although the modems business, Psion Connect, had anticipated such a change, the effect has been more sudden than expected. Psion Connect's next products, a range of wireless modems, are not due to be introduced until next year. Mr Levin said: "I don't feel we've been tardy or acted inappropriately with this - quite the contrary. Maybe we announced that this would happen too early and people have forgotten we predicted it."
Psion's problems have been aggravated by rising prices for commodities such as memory chips, and by the weak euro, which means its European earnings are less valuable.
The profits warning provided ammunition for critics of the company, who suggest that its core handheld computers are losing ground to competitors such as those of the Californian company Palm.
Mr Levin denies this, maintaining that because Palm Pilots are cheaper and have no keyboards they are targeted at entirely different customers. The firm has also been hit by rumours that it has been losing key staff, although insiders claim this is a false allegation that has been spread by a disgruntled former employee.
Furthermore, Psion's Symbian joint venture, which is to develop operating systems for net-enabled mobile phones, has been hit by revelations that two partners, Ericsson and Motorola, have been talking to other computer companies. Mr Levin pointed out that they both still stress their commitment to Symbian.
Philip Smith, an analyst at Teather & Greenwood, said: "The general environment for Psion has not been good. When you bundle all these factors together it's not a pretty picture."
Founded 20 years ago by Zimbabwean physics professor David Potter, Psion is one of Britain's most successful technology firms but its shares have historically been volatile. Microsoft boss Bill Gates famously identified the firm in 1998 as his corporation's "number one threat".
Before yesterday's warning the group was predicted to make profits of £6.7m.
Psion spent £250m last month buying Teklogix International, a Canadian maker of handheld scanners.The group said integration was going well, with costs likely to total £3.5m.
