Palm Pre sales guesstimate: 1.5 million

Palm's Pre introduction has won over a lot of folks--including some Wall Street bears. And one is predicting 1.5 million units 12 months after the Pre launches sometime in the first half.

In a research note, Citi analyst Jim Suva upgraded the Palm to a "hold" from a "sell" based on the Pre, which "looks like a game changer" and "could help improve financials."

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Suva's note, which came amid a similar upgrade from Deutsche Bank, has the

usual caveats about Palm. The caveats: No one knows what the margins will be on the Pre and carriers and consumers will likely hold off on older Treos and Centros to make for an ugly quarter or two.

That said the Pre has Suva a little wound up. He writes:

Our estimates move significantly higher on the strength of the Pre; however, we still forecast operating and net income losses for the next few fiscal years. Although we are very optimistic on unit volumes, we are taking a fairly conservative view on ASPs and margins. While reaction was overwhelmingly positive (and rightfully so in our view), very little was asked or offered on Palm’s pricing strategy for the Pre. We think Palm will soon have to offer details on expected ASP for the Pre and will likely revisit our estimates in the future. That said, even with a fairly conservative ASP and margin expectation, our forecasted operating losses narrow dramatically and we would expect that trend to be echoed in consensus estimate.

Suva also estimates that Palm management won't fall for the profitless prosperity stuff like it did with the Centro. Palm sold a bunch of Centros at the $99 mark, but that didn't exactly improve profit margins.

Suva notes:

We do not believe the Pre will be targeting the entry level market nor targeting a $99 price point; we expect an ASP of $350 - $450 with the consumer paying $199 - $249 after subsidies from Palm’s launch partner Sprint and mail-in rebates from Palm. We note that there is a risk that Palm may have to respond to aggressive subsidies/pricing by other carriers and vendors, which would clearly have a negative impact on margins; however, we don’t think Palm management is eager to repeat the Centro experience of profitless prosperity.

Fair enough. Once he adds up the unknowns and caveats along with the buzz about the Pre--it was even mentioned on Treo user Howard Stern's show today--Suva reckons Palm will sell 1.5 million Pres in the first year. Suva's assumption is that the Pre will remain exclusive to Sprint for a "fairly lengthy period" to entice the carrier to offer a hefty subsidy.

Here's a look at Suva's guesstimate (in millions):

Suva said his estimates may be conservative since he doesn't assume an international launch yet. We'll see, but even if Suva is in the ballpark Palm's financial picture should improve--after a few ugly quarters until the Pre gets rolling. Investors seem to be sold. Here's a look at the 5-day double from the Pre love.