Product surplus moves Palm to cut prices

Palm is cutting the price of its Palm Vx from $349 to $299, after having already trimmed the price last month with the announcement of two upcoming models, the m500 and m505. The company is also cutting the price of its low-end m100 from $149 to $129 and is making permanent a $30 discount on its Palm IIIc, bringing the older color model to $299.

The moves were announced Wednesday at Palm's analyst meeting here.

Palm is faced with the prospect of an additional $200 million in inventory piling up this quarter, based on current demand. That's on top of $100 million in inventory the company had on its books at the end of last quarter.

Chief Financial Officer Judy Bruner said that cutting through the inventory and managing Palm's cash is the company's No. 1 focus. The company has forecast that its unrestricted cash could be cut in half this quarter because of the inventory pileup, along with a projected operating loss of $80 million to $85 million.

Bruner reiterated that Palm will look to free the $238 million in restricted cash tied up in plans for a new headquarters in San Jose, Calif.

C.E. Unterberg Towbin analyst Scott Miller said he didn't believe the cuts would immediately start a price war with other handheld makers.

"Handspring is in the position of having completed their product transition. (The company) will take a leadership stance to try to avoid cutting prices," he said.

Allen Bush, a Handspring spokesman, confirmed that the company doesn't plan to cut prices in response to Palm's announcement. He added that Handspring is planning "seasonal promotions" and isn't experiencing an inventory glut itself.

On Wednesday, Palm also responded to criticism that some of its problems can be traced back to its decision to unveil the m500 and m505 in mid-March--long before the products were ready to ship in volume.

At the start of the analysts' meeting Tuesday afternoon, The company announced a delay of a "few weeks" for volume shipments of the two products. Last month, the company said the m500 would ship in volume in mid-April, and the m505 in May.

Chief Marketing Officer Satjiv Chahil said Wednesday the company knew competitors would be announcing products around the same time and wanted to be able to show off its upcoming products to the international market at the CeBit trade show in Germany in late March.

"We didn't want the perceived leadership to shift away from us," Chahil said.

Palm executives also said the company is trying to renegotiate component contracts to cancel and delay orders where it can, and is looking for ways to cut the costs of making its products.

"Even a dollar saved on packaging translates into millions of dollars," Chahil said. "Anywhere there is room to save a penny we are looking at it."

Chahil even noted the rather modest setup at the analysts' meeting, the first since Palm became a standalone company a year ago. The requisite logo-adorned bags were missing, for example, and participants received only the agenda and a T-shirt.

"If you don't find this meeting very elegant, I don't apologize for it," Chahil said. "We want to save wherever we can."

Staff writer Richard Shim contributed to this report.