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UPDATE 2-Palm warns on Q3 sales, shares fall 11 pct

* Prelim fiscal Q3 rev $85-90 mln vs Wall St view $155 mln

* Sees legacy products pressuring rev, margin in fiscal Q4

* Launch of Pre on track for first half of calendar 2009

* Shares fall 11 percent after-hours (Adds share move, details on cash and capital position)

NEW YORK, March 3 (Reuters) - Palm Inc PALM.O warned of weaker-than-expected quarterly revenue due to lower demand for its older phones, a weak economy and late U.S. shipments of its Treo Pro, sending shares down 11 percent in extended trade.

The company forecast continued margin pressure from legacy products in the current quarter even as it prepares to launch the new Pre phone, throwing cold water over investor optimism that the touch-screen smartphone could quickly revive Palm.

Palm also said it was looking at ways to bolster its capital position, while it aims to strike back at rivals like Apple Inc's AAPL.O iPhone and Research in Motion Ltd's RIM.TORIMM.O BlackBerry.

“The much-anticipated launch of the Palm Pre remains on track for the first half of calendar year 2009, but as expected we’ve got a difficult transition period to work through,” Palm Chief Executive Ed Colligan said in a statement.

In preliminary results for its fiscal third quarter ended Feb. 27, Palm said it expected revenue to fall to a range of $85 million to $90 million.

That compared with the average analyst forecast for revenue of $155 million, according to Reuters Estimates. The company is due to report its quarterly results on March 19.

Palm said its cash, cash equivalents and short-term investments balance is expected to be between $215 million and $220 million at the end of the third quarter.

The company said it had sufficient cash but intends to strengthen its working capital due to the difficult economy and the launch of the Pre.

Thus Palm said it is evaluating options such as exercising its right to remarket some common shares that are underlying preferred stocks and warrant units held by private equity firm Elevation Partners.

Palm had said in December that it may have Elevation sell up to a $49 million stake to other investors on the same or better terms by March 31. Palm is entitled to retain any profits from such remarketing.

Palm shares fell 83 cents to $6.55 in after-hours trade following the announcement. They had more than doubled since the company unveiled the Pre at the Consumer Electronics Show in Las Vegas in January, on hopes that it could win back some of the market share it has lost to the iPhone and BlackBerry. (Reporting by Tiffany Wu and Ritsuko Ando; Editing by Gary Hill, Bernard Orr) (Reporting by Ritsuko Ando)

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