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'Zire' aims to flame cheap device desire

It's not the first Palm handheld to sell for under $100--but it is the first low-priced device the company expects to make money on. Will it work?

Palm's new "Zire" handheld, on sale Monday, isn't the first Palm handheld to sell for under $100--but it is the first low-priced device the company expects to make money on.

Historically, Palm handheld devices are discounted and often sell for $100 at the end of their retail life cycle. With Zire, Palm has cut costs in a number of areas to offer the new device at that price.

The slim, white handheld is similar in size to Palm's m500 handheld, but is lighter and has just two main buttons--for address book and calendar functions. The Zire connects to a PC with an industry standard mini-USB cable, instead of a more costly, custom-designed cradle.

The device comes with 2MB of memory--typical for entry-level Palm handhelds--and has a black and white screen and a rechargeable battery. The Zire runs version 4.1 of the Palm operating system.

Palm hopes the simplicity will appeal to consumers who have previously shied away from handheld devices.

"They are not technophiles," said David Christopher, senior director of product management for Palm. "They are actually technophobes."

To reach the technology wary, Palm plans to sell the Zire in consumer retail stores such as Target, K-Mart and Radio Shack. The device will also be sold in electronics and office supply stores that traditionally carry Palm products.

Unlike past models sold in large boxes, Palm plans to sell the Zire in a clear plastic package that can hang on a retailer's shelf. Competing models are often stored in a glass case, Christopher said.

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Creating a device that appeals to a mass market is key to Palm's strategy, Christopher said.

"It's about growing the market and providing an upgrade base in which to sell future Palms--and doing so profitably," Christopher said.

Palm is in the process of splitting its product line into two brands--Zire for entry-level consumers and Tungsten for gadget fans and mobile professionals. The first Tungsten models, including Palm's first handheld running OS 5, are due to be unveiled Oct. 28.

Financial analyst William Crawford said Palm strategy with Zire is on the target, yet competitive issues remain.

"It's not a slam dunk, but I think it's the right move," said Crawford, who follows the handheld industry for US Bancorp Piper Jaffray. Yet he added that Zire will compete against more advanced, yet older, devices that through price cuts edge closer to Zire's low price. For example, Palm's 8MB m105 is now selling for $100.

By continuing to push lower prices, Palm is working to keep a competitive distance between its handhelds and those running the Pocket PC operating system, Palm's Christopher said.

"This is a market that Microsoft is ignoring," he said.

Palm CEO Eric Benahmou first mentioned plans to debut a $100 handheld model at an investor conference in June. The Zire is designed to be the first in a family of consumer-oriented, low-priced products.