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Just as the mobile industry was digesting the implications of Palm’s dire financial results, the iconic device maker yesterday gave its beleaguered supporters a much-needed morale boost, by announcing that AT&T will start selling its Palm Pre Plus and Palm Pixi Plus smartphones.

But will a precious place in the handset portfolio of the leading US HSPA operator be enough to overshadow Palm’s lack of traction among consumers and convince more HSPA operators and more developers to support its Palm webOS smartphone platform?

Let’s look first at the extent of Palm’s failure to convert shipments to distributors into sales to consumers. In the quarter ending February 26th, Palm shipped 960,000 smartphones, an almost 300 percent increase year-on-year. But smartphone sell-through in the quarter was only 408,000 units, down 15 percent year-over-year.

It doesn’t take a rocket-scientist to figure out that there are now a lot of Palm handsets sitting in the channel and that is bad news for the Sunnyvale, California company’s bottom line. Palm warned that its sales in the current quarter are likely to be less than US$150 million, down from US$366 million in the quarter ending February 26th.

More marketing needed

Just a few days after Palm shocked its investors, it announced that AT&T will “in the coming months” start selling the Palm Pre Plus and Palm Pixi Plus phones for US$149.99 and US$49.99, respectively, with a two-year service agreement and after a US$100 mail-in rebate. That means Palm webOS devices will be available from the US’ three largest mobile operators – AT&T, Sprint and Verizon Wireless – as well as a clutch of mobile operators overseas, such as O2 in the UK and SFR in France.

But with smartphones fast going mass market, fuelled by the formidable marketing budgets of Apple, RIM, Nokia, Google and Microsoft, Palm is running out of time.

So, what exactly does “in the coming months” mean and how prominently will Palm handsets feature in AT&T’s stores, its websites and in its advertising? Even within AT&T’s portfolio, the Palm devices will face intense competition, particularly from the iPhone. Moreover, will Verizon and Sprint continue to promote Palm products, which were originally positioned as a riposte to the iPhone, when they are no longer a differentiator over AT&T?

Although Palm says there are now a respectable 2,000 apps for its webOS platform, there is a danger that some developers will be spooked by Palm’s low sell-through figures and will abandon the platform. That’s why the AT&T announcement is so important – it may convince developers to keep the faith. A shortage of compelling apps would trap Palm in a vicious circle that would reduce consumer sales further still as operators promote alternative smartphones and more developers take flight.

Palm’s best hope is that AT&T and other big operators, worried about the growing market power of Apple and Google, give the unthreatening Sunnyvale company their whole-hearted support.

 

David Pringle

This article was first published on the GSMA’s Mobile Innovation Exchange. David moderates discussion forums on the site and is a freelance media and investor relations consultant.

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members