Palm hopes its Pre is a handful for competition

More than a decade ago, Palm Inc. rose to prominence on the strength of its Palm Pilot, a small device that put computing power literally into customers’ hands. In its stock’s first day of trading nine years ago, the shares nearly tripled from their initial offering price.

But the technology market bust, lowered demand and the rise of smart phones, where Palm’s Treo was once a major player, took their toll. Palm looked into selling itself two years ago, and its stock hit a low in December, closing at $1.42, down 99.6% from that first-day close.

On June 6, though, the Sunnyvale, Calif., company gets a chance to strut its new stuff and regain some of its luster. Palm on Tuesday introduced its long-awaited Pre model -- a touch-screen smart phone with a slide-out keyboard -- to help it compete more effectively with popular iPhones and BlackBerrys.


“This is an opportunity for Palm to invigorate itself and become a serious contender,” said Roger Entner, head of telecom research at Nielsen Co.

If it doesn’t, he said, “that could mean the end of the road for Palm.”

So far, Wall Street has liked what it has seen. Shares have rocketed 280% this year, though they lost 38 cents Tuesday to close at $11.68.

With the Pre, Palm is hoping to grab back a larger chunk of the smart phone market and steal some fire from Apple Inc.'s iPhone and iPod Touch, which combined have more than 30 million subscribers, according to industry research and consulting firm Forrester Research Inc.

Palm was once known for coming out with cutting-edge gadgets before anyone else. Its Pilot debuted in 1996 and changed the personal device market, and its Treo, which came out in 2002, attracted millions of loyal followers.

But as the iPhone, BlackBerry and other devices entered the market, Palm didn’t update its operating system quickly enough to keep its phones competitive, said Tavis McCourt, managing director at investing firm Morgan Keegan. The operating system is what users see when they turn on the phone and is what allows Internet surfing and applications to run on the device.

In the first quarter of 2006, Palm’s operating system had a 40% share of all smart phone devices in the U.S., compared with BlackBerry’s 28%, according to Nielsen.

By the same time this year, Palm’s share had fallen to 10%, BlackBerry’s had grown to 36% and Apple had claimed 21% just since the iPhone was introduced in 2007.

In January, Palm unveiled an operating system, called WebOS, for the Pre and other devices. Palm’s future “hangs in the balance of the WebOS operating system,” McCourt said.

WebOS has some features that distinguish it from Apple’s operating system. It makes it possible to multi-task -- switch to one application without closing another -- which can’t be done on the iPhone. It can connect several e-mail accounts so a user doesn’t have to check mail in multiple places. And its touch-screen features are similar to the iPhone’s, including a zoom capability with just a brush of a finger.

WebOS has a simple interface that makes it easier for website developers to create applications for the phone, said Charles Golvin, principal analyst with Forrester Research. Palm will have to attract developers to make the Pre as application-heavy as the iPhone, which touts its panoply of apps in its commercials.

A successful, feature-rich phone would also be a boost for Sprint Nextel Corp., another company in desperate need of a jolt. Sprint lost nearly 5 million customers last year to rival carriers and is counting on the Pre to bring some back.

“We think we’ve got a compelling story to tell that should help us acquire new customers,” said Jeff Hallock, Sprint’s vice president of consumer marketing.

Sprint has been trying to gain a stronger foothold in the marketplace since Dan Hesse was named chief executive in late 2007. Once known as the worst cellphone carrier for customer service, Sprint has tweaked its operation to respond better and boasts that its third-generation, or 3G, high-speed network is the most dependable.

Although it lost 1.3 million subscribers in last year’s fourth quarter, it lost only 182,000 subscribers in the first three months of this year

However capable the Pre turns out to be, it’s still coming out during a deep recession at what some analysts think is too high a price. They had hoped that the Pre would cost less than the $199 iPhone, but Palm has pegged it at the same price after a mail-in rebate.

They also had hoped that Sprint would offer a lower-priced data plan. According to recent published reports, Apple’s exclusive carrier, AT&T; Inc., is considering offering less-expensive data plans with limited Web surfing to make the iPhone more attractive.

Sprint promotes its Simply Everything plan -- unlimited calling time, data, text, e-mail and Web surfing -- as a bargain compared with those offered by AT&T; and Verizon Wireless. Sprint’s plan costs $99.99 a month, while AT&T;'s iPhone 3G plan with unlimited text costs about $150.

But that’s like comparing apples to oranges, said Ashok Kumar, an analyst at research firm Collins Stewart.

“It would have been a lot more competitive at a lower price point,” Kumar said.

Palm will have to wait, he said, to see whether consumers will pay for the device that Sprint says “redefines the experience of living and working wirelessly.”

Joining the iPhone and the numerous BlackBerry models, both Motorola Inc. and Samsung plan to release phones based on Google’s Android operating system this year. T-Mobile USA already has a first version out. And Nokia is planning on releasing new and less-expensive smart phones.

“It’s getting crowded very quickly,” Kumar said.

Palm and Sprint just might succeed, said Tom Conrad, chief technical officer at Web radio service Pandora.

“They gave us an early preview, and I went into that meeting extraordinarily skeptical,” said Conrad, whose company has apps for the iPhone and BlackBerry and is developing one for the Pre. “But the first time they let me use one, I was pretty sold.”