Palm slashes prices to make way for new models

As first reported by CNET News.com, Palm will release the Palm IIIc with color display on Feb. 20, along with the Palm IIIxe, which will expand the memory of the Palm IIIx device. As is typical practice for the company, it is now cutting prices across its line of products in preparation for the new releases.

Although the introduction of the first color Palm is clearly a technical milestone for the company, analysts are unsure whether the fancy displays will offer much real value to users.

The latest price drops on the popular handhelds cut a wide swath. The Palm IIIe has been marked down from $179 to $149. The Palm IIIx has come down to $229 from $299, while the Palm V is now $329 and the Palm Vx has an estimated retail price of $399. The Palm VII with wireless Internet access has been cut from $499 to $449.

The Palm operating system, upgraded to support color displays, is not equipped yet for many of the multimedia applications that Microsoft's Windows CE is known for. Further, color displays are typically bulky and a drain on battery power, two issues that Palm executives have publicly pointed to as the reason the company has waited so long to release a color device.

Meanwhile, the price cuts, coupled with the release of the Palm IIIc, may actually do the most damage to a Palm licensee: Handspring. Started last year by Palm co-founders, Handspring's first product, dubbed Visor, is nearly identical to the Palm III, with the exception of an expansion slot in Visor known as the Springboard.

"As far as Handspring goes, the Palm IIIe and Handspring's Visor are both targeted at mass-market consumers," said Brian Philips, a mobile analyst with ARS, noting that Palm may have cut prices on its low-end IIIe to $149 to prepare for the eventual arrival of the identically priced Visor in the retail channel. The Visor is currently only available through Handspring's Web site.

"When Handspring does make it to retail, the Palm IIIe wasn't price competitive," Philips said.

Other than Handspring, the Palm hardware licensing strategy has mainly been to find manufacturing partners who compete in different markets than Palm. For example, the handheld maker hooked up with Nokia to create phone handsets based on the Palm operating system and with Sony to create a multimedia device with wireless capabilities. But Handspring and Palm are competing for many of the same customers, analysts said, and the recent moves by Palm may hurt its licensee.

Palm, which is in the process of separating itself from parent company 3Com, hopes to raise $368 million in an initial public offering this month.

The company has been on a roll recently, striking high-profile partnerships with Nokia and Sony, and topping a variety of market research studies surveying the handheld landscape.

Palm has gained a wider audience as both the computing and communications industries look to digital gadgets as an example of the next wave of Internet access for small and limited function devices.

But although Palm has enjoyed a sizeable lead over competitor Microsoft products in terms of market share and developer loyalty for handheld devices, the company has lagged behind the software giant in a few key areas. Microsoft, which has placed a premium on delivering more functions over simplicity or ease of use, has offered devices with color displays for almost a year, along with digital music players and some digital imaging applications.

Palm now finds itself in the unusual role of playing catch-up to Microsoft, striking deals and developing technology to integrate these features into its own devices, as well as into products based on the Palm operating software. Along those lines, the company is now finally set to release the Palm IIIc, and more powerful multimedia and wireless devices are in the works from partners like Sony.

The Palm IIIc is expected to be priced at $449, while the Palm IIIxe with 8MB of memory is expected to go for $249 and replace the Palm IIIx, sources say.