Price cuts for new Palms a sign of trouble?

And in what could be a more troubling sign, some of the price cuts are coming on Palm's newest models: the m500 and m505.

Electronics retailer Best Buy has been the most aggressive, chopping the prices of all Palm models and several handhelds that run on Microsoft's Pocket PC operating system. Significantly, though, the deepest cut comes on Palm's m500, which is selling for US$330, or US$70 below its listed price of US$400.

The m500, which started shipping last month, has also been spotted at bulk reseller Costco Wholesale for US$379, a US$21 discount.

The more recent color-screen m505 model also has been discounted at Best Buy, which has shaved about US$30 off the US$450 list price.

Retail analyst Matt Sargent said Best Buy's prices are likely still above what the retailer is paying Palm--but just barely. And that is a bad sign for new products, he said.

"These are brand-new products," Sargent said. "It indicates they are not moving quite as fast."

Best Buy is also selling the Palm Vx, m100, m105 and VIIx at a discount and has lowered prices on Hewlett-Packard's Jornada and Compaq Computer's iPaq Pocket PC.

A Best Buy spokesman said the reductions are temporary, with the sale set to end Saturday.

West Coast computer retailer Fry's Electronics is still selling the m500 and m505 at full price but has shaved about US$25 off the price of the Vx, VII and m100 models.

Other retailers have held firm, with Officemax.com and Officedepot.com both listing Palms at their standard price. New York retail store J&R Computer World lists several Palm models at just a few dollars below the standard price.

Smaller online retailers--including CompuAmerica, MPSuperstore.com and MoreAudioVideo.com--are quoting lower prices on the m500 and m505.

It is well known that a glut of Palm's older products exists, with the company saying in late March that it expected to see up to an additional US$200 million worth of goods pile up in its stocks during the current quarter. Palm also said in its most recent earnings warning earlier this month that there is more than three months' worth of inventory in the retail channel.

To help reduce inventory, Palm itself has kicked off a series of price cuts, as well as steep discounts for developers. It has also launched a program to reward salespeople with a free m500 if they sell 15 Palm handhelds of any model between April 26 and June 24.

"The Palm segment of the market has been very slow," Sargent said.

Earlier this month, Palm said initial sales of its m500 and m505 were encouraging, and executives expressed hope that perhaps some handheld buyers might have been waiting to see the new models before making a purchase.

However, the fact that there are price cuts for high-end models may be an indication that sales are not growing as quickly as Palm had hoped, Sargent said.

William Crawford, an analyst at U.S. Bancorp Piper Jaffray, said the price drops may not indicate weak demand at the high end but that consumer attention may be shifting to the m505. Crawford also said buyers may be trying to sift through all the new models, including Handspring's Visor Edge and Sony's latest Clie, which is just hitting retail stores.

"That could be causing some consumers to hold back," Crawford said.

Although Handspring does not appear to have the same inventory issues, Sargent said the pricing moves will affect the company directly and may force it to further cut prices.

Handspring has already made some tweaks to its pricing, but the company has thus far avoided a price war. In addition, the company requires retailers that want Handspring's advertising dollars to stick to the company's official prices.

"We feel comfortable that we can maintain a level playing field with all of our retailers," Handspring spokesman Brian Jaquet said.