Palm Pixi Coming Next Month

Palm Inc.’s (PALM - Snapshot Report) new smartphone called Pixi, a lighter and cheaper version of the Palm Pre will be available via Sprint Nextel Corp. (S - Analyst Report) beginning Nov 15 for just $99.99. The phone will come with a two-year contract after a $50 instant rebate and a $100 mail-in rebate. The phone will also be available through Best Buy (BBY - Analyst Report), RadioShack (RSH - Snapshot Report) and Wal-Mart (WMT - Snapshot Report) stores.
 
Palm’s Pixi runs on Palm's WebOS. The phone has many features including 8 gigabytes of built-in memory, an exposed QWERTY keyboard and personalization features. However, it does not support Wi-Fi capabilities.
 
Alhough Palm has priced the Pixi competitively to attract more customers, we remain unsure about the future of Pixi. Amazon (AMZN - Analyst Report) currently sells the Pre with a two-year contract at just $99. Sprint started selling the Pre smart phone in June and currently sells it for $150 after rebates and a two-year contract.
 
Moreover, in comparison to the Pre, Pixi appears to be weak. Pixi has a 2-megapixel camera, compared to Pre’s 3-megapixel version. It also has two small speakers compared to Pre's single large one. Moreover, Pixi has a slower processor with a smaller screen than the Pre.
 
Although Palm is trying to snatch customers from its larger competitors, Apple Inc. (AAPL - Analyst Report) and Research In Motion (RIMM - Analyst Report), we believe that Palm’s weak products will not allow it to achieve the desired result.
 
Moreover, Apple’s price cut on its 3G iPhone to $99 from $199 and the launch of the new iPhone 3GS for $199 will be a further hindrance to Palm Pre’s sales growth.
 
We believe Palm’s competitive position has been permanently damaged by its antiquated offerings and the company is still selling only a small fraction of Pre phones to smart-phone users. Meanwhile, both Research in Motion’s BlackBerry and Apple’s iPhone have grown a loyal customer base. Apple, in particular, continues to expand market share.
 
We maintain Our Underperform rating on PALM. Shares of Palm fell 4.3% and closed at $14.28 yesterday.