The handheld debuted in September at $249. However, Palm said it has been able to trim its costs on making the device.
"Palm has achieved some cost savings on the m125 and is passing the savings on to customers," a Palm representative told CNET News.com.
Analysts have questioned how Palm would fit the m125 in its lineup alongside the older Palm Vx. The m125 offers a Secure Digital expansion slot. The Vx doesn't include that slot but has a slimmer case and larger screen than the m125.
The m125 was initially cheaper than the Vx, which had been priced at $299. However, that model has also had a holiday price drop, to $199. With the drop on the m125, the two handhelds cost the same.
"I think this is just a way to boost their holiday sales," IDC analyst Kevin Burden said of the latest price cut.
Burden noted that the best-selling handhelds have been the low-end models, such as Palm's m100 and m105 and Handspring's Visor Deluxe--all of which sell for under $150.
"Given what this economy is doing, getting the m125 to an even more attractive level is more important for holiday sales," Burden said.
Palm has chopped the price of nearly all its other products in recent months. In November, the company cut $50 off the price of its highest-end model, the m505, bringing it to $399. The month before that, Palm trimmed the prices of its two low-end models, the m100 and m105, bringing the price of the former to $99 and the latter to $149.
In related news, Sony this week dropped the price of its Clie PEG-N760C by $50, to $449. The handheld includes a color screen and plays digital-audio files.