Price cut on Palm Pre not a sign of bad sales

Palm and Sprint like and need each other, analyst says

Buried amid today's announcement of the new Palm Pixi smartphone was the news that the price of the Palm Pre smartphone will drop to $US150, down from $US200, after rebates.

The Pre's price drop came a day after Sprint Nextel Inc., the exclusive carrier for the Pre, said it mistakenly launched an offer for a $US100 service credit for new Pre buyers and then quickly revoked the credit.

What gives with Palm and Sprint? Are the pricing moves a reaction to poor Pre sales? If so, could such a reaction foretell a truly cut-rate price for the smaller Pixi and for less than the rumored $US99 price tag?

Sprint and Palm won't comment on Pre sales figures, but say they are pleased with sales and called such a price cut a normal move in a crowded smartphone market prior to the holidays. Even Apple Inc. regularly drops device pricing, as it did again today, analysts noted.

Some bloggers and analysts have interpreted the Pre pricing reductions as a signal by Palm and Sprint that they are having trouble taking smartphone market share. The Pre is "not living up to its hype," commented blogger Jon Ogg in 24/7 Wall Street yesterday.

On the other hand, industry analysts today in interviews were unfazed by the Pre price reduction and declared the Palm and Sprint relationship a healthy one, even if the Pre is not the explosive product that the Apple Inc. iPhone is.

"In an age of high technology, dropping prices rather quickly is not uncommon, as Apple did today," noted Ramon Llamas, an IDC analyst. The lowered price for the Pre is "not a result or poor sales, I'd say. That's a knee-jerk reaction. If you want to see inventory really move, then price the smartphone below $US100."

Llamas said he is actually "heartened" by the Pre price reduction, especially before the holidays, since it shows Sprint and Palm want to remain competitive with the iPhone 3G, which can be purchased for as little as $US100.

The Pre is "not the gangbusters device that the iPhone is," Llamas added, and the smartphone could be seen as the first device with the new WebOS to "capture the hearts and souls of the Palm faithful."

Independent analyst Jeffrey Kagan expressed similar views, noting that Palm will likely offer several devices in coming months with other carriers than Sprint. "No one Palm device will be a major breakthrough for any single carrier, and there might be modest sales from every carrier, but taken altogether, those sales will show that Palm can be a strong company again," Kagan said.

While Sprint described the service credit offer that was quickly revoked a mistake, Kagan questioned whether it was a marketing goof or was done purposely to test the market in some way. Whatever the truth, Kagan said the attention focused on the new Palm devices helps Sprint, and Palm is helped because it needs a major carrier to market its new products.

"What we are watching is Palm reinventing itself," Kagan said.

Sprint spokesman James Fisher said Sprint is pleased with sales of the Pre and urged investors to watch Pre sales over a longer period of time to judge its ultimate performance. Fisher said the Pre and the new Pixi are just a part of the new phones and devices Sprint has recently introduced, all of which help create a "major resurgence in our company."

The relationship between Palm and Sprint seems to be working and will continue for a long time, even as the federal government attempts to crack down on exclusive deals between carriers and device makers, Llamas said.

"Sprint and Palm both like and need each other, and that's a good thing for the market," Llamas said.

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