Palm hands out wireless discounts

Summary:Facing slowing sales and a glut of its products, the handheld computing leader trims the price of the Palm VIIx model by $100.

In the latest in a series of price cuts, Palm plans to announce later Friday that it has chopped the price of its wireless Palm VIIx.

The $100 price cut brings the sticker price of Palm's only model with a built-in wireless modem to $199. Palm is also running a promotion through the end of the year that offers a $100 mail-in rebate for those who buy a Palm VIIx and sign up for a year's worth of Palm.net mobile Internet service. Service costs $24.99 per month for limited use or $44.99 per month for unlimited access.

The Palm VIIx cut--already in effect at Palm's online store--comes after Palm dropped the prices of several of its other models last month.

The company is suffering through a glut of its products. Palm has said it expects its inventory to swell by as much as $200 million this quarter.

Retail sales of Palm handhelds have been weak, with April sales off 20 percent from March, according to NPD Intelect figures cited by Palm Chief Financial Officer Judy Bruner.

"It's been fairly weak and getting a bit weaker from February to April," Bruner said of retail sales, speaking to investors during the J.P. Morgan H&Q Technology Conference earlier this month.

As previously reported, Palm plans to debut a new wireless handheld by the end of the year that offers a slimmer case, always-on e-mail with instant notification and a secure digital expansion slot.

Purported pictures of that device were posted recently at PalmStation.com, a site for handheld computing enthusiasts. A Palm representative declined to comment on the authenticity of the pictures.

Sales of the wireless handheld have been fairly limited since Palm introduced the Palm VII in early 1999 at $599. As of last quarter, Palm had about 190,000 subscribers to its Palm.net service. IDC analyst Kevin Burden says Palm has probably sold about 300,000 Palm VII and Palm VIIx handhelds, but that many people have stopped using the wireless Internet access.

"For a majority of people, the novelty wears off quickly," Burden said. "Wireless service is still pretty expensive. As the Palm VII always has been, it will be for those consumers who view the wireless Internet as ready and compelling."

The number of consumers that hold that view is probably limited, he said. However, Burden said the wireless Internet is still in its infancy, with better networks and better handhelds on the way.

J.P. Morgan H&Q analyst Paul Coster said the price cut is a good idea, particularly given that Palm plans to come out with a new wireless handheld later in the year.

"It probably makes sense for them to be discounting that product line now and getting it through the channel now (rather) than to have a big inventory overhang of the Palm VIIx three to six months from now," Coster said. "I take this to be a really good sign that they are not going to repeat the m500 debacle."

Palm was criticized for building inventory of its Palm Vx and other products earlier this year, even as word was leaking out about its m500 and m505 products, which have just started shipping.

Coster started coverage of Palm on Friday with a "long-term buy" rating, noting the company's near-term problems but saying its leadership in the handheld world makes it an attractive long-term stock.

"Our cautionary stance arises from the whipsaw volatility that the handheld device stocks have been subject to, as well as the short-term uncertainty as Palm resolves its inventory problems," Coster wrote in a research note.

But even an inventory glut has its bright side, he said.

"There's a silver lining attached to these rebates and price reductions, which is that Palm may garner some market share and perhaps develop some emerging markets that otherwise would have remained untouched outside this country," he said.

IDC's Burden also feels that the price cuts show Palm is determined not to see a repeat of its current inventory problems.

"Their (other) price cuts before came too late," Burden said. By pricing the VIIx at $199, what was once Palm's priciest handheld is now quite affordable.

"What was once the high-end price now rivals the low end," Burden said.

Topics: Hewlett-Packard, Hardware

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