Palm's next steps: Distribution outweighs product buzz (for now)

Palm unveiled the Pre and Pixi Plus, but the distribution heft that a partnership with Verizon Wireless could bring may be the bigger story.
Written by Larry Dignan, Contributor

Palm unveiled the Pre and Pixi Plus and the news was widely expected. As for the devices, Palm had no chance of replicating the product buzz it created a year ago. However, the fact that Palm is taking its devices to Verizon Wireless may be more important anyway.

For Palm, the game right now boils down to one word: Distribution. The Pre Plus added some interesting features---at least enough to consider it as an option---but don't expect a lot of gadget lust. Nevertheless, Palm's Pre announcement circa 2010 (Techmeme, Palm, Andrew Nusca, Matthew Miller) may be more advantageous to the bottom line.

If Verizon Wireless can put a little marketing heft behind the Pre, Palm and its WebOS will get a wider audience. Palm is expecting healthy channel support from Verizon to coincide with the Jan. 25 Pre Plus and Pixi launch.

Barclays Capital analyst Amir Rozwadowski says:

In contrast to some investor concerns, management is comfortable with the level of support that Verizon is going to provide for the devices, noting that the carrier is set to launch a solid marketing campaign in conjunction with the devices' launch. Palm did not provide any pricing terms for the device. Our most recent checks suggest a $200 retail price point, with a wholesale ASP north of $500 for the Pre Plus.

Now if Palm can land a deal with AT&T it will have enough carrier distribution to compete. On Palm's latest earnings conference call, executives said the company's strategic plan is a marathon not a sprint. The focus right now has to be on growing the sales channel.

Sure, Palm has slipped on the buzz-o-meter a bit, but talking to some of the company's installed base customers say that the WebOS improves with each update. If that improvement---coupled with some distribution---continues Palm may become a player.

It's unclear how long distribution gains will keep Palm rolling though. As noted by Morgan Joseph analyst Ilya Grozovsky, Palm faces a big battle for shelf space at carriers.

We expect Palm's devices to face heavy competition at Verizon from competitors such as the Blackberry, Droid, and the Eris. Despite the incrementally positive data points yesterday, we continue to believe Palm's devices at Sprint face decelerating sales and that those at Verizon face significant competition.

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