Palm cuts PDA price

Franklin Paul

NEW YORK: Palm Inc., the largest maker of personal digital assistants, said
on Monday that it has slashed the price of its wireless model to $99, after a
rebate, from $299.

The move comes as Palm and rivals such as Handspring Inc. struggle with a
glut of older models even as they introduce new, more powerful ones with more
power and slimmer packaging. A spokeswoman for Santa Clara, Calif.-based Palm,
said the company hopes the lower prices would spur consumer interest in
"the benefits of wireless technology," and that it might help move
product in retail stores.

Palm's VIIx device will now sell on its Web site and at retail for $199, and
buyers can get a $100 rebate once they sign up for the Palm.Net Internet access
service, which starts at about $25 a month. Using the wireless account, users of
the model can access the Web, exchange e-mail, and update personal appointment
data when away from their home or office.

When introduced in October 1999, the Palm VII, which boasts 8 megabytes of
memory, sold at about $499. The rebate was introduced in February. Wary of
inventory issues and the slowdown of the US economy, Wall Street analysts have
been tweaking lower their outlooks for the handheld makers.

On Monday, Lehman Brothers analyst Joseph To, cut share-price targets on Palm
to $11 from $25 and Handspring to $18 from $28, citing the Palm price reduction.
Palm shares closed down 63 cents, or nearly 8 per cent, at $7.10, while
Handspring fell 64 cents, or 5.8 per cent, to $10.31.

Clearing out clogged inventory channels

To said in a note to clients that he believes Palm cut its price for the VIIx to
try to clear out inventory so that minimal levels will be in the channel when it
introduces its next-generation wireless product sometime this fall.

Indeed, Palm has warned that its inventory, which swelled to $102 million in
the quarter ending in March from $34 million three months earlier, could grow to
$300 million this quarter. To said the price cuts could bruise sales of
Handspring's lower-end models, those geared more toward consumers than Palm's,
which has set its sites on sales to corporations.

"The $99 Palm VIIx could potentially cannibalize some of the sales of
Handspring's low end products," he added. "Furthermore, we do not
believe that this is the end of pricing actions between the two vendors."
Both Palm and Handspring in recent weeks have reduced prices on other older
models. Their most recently introduced models sell for $400 and higher.

CIBC World Markets analyst Thomas Sepenzis said the price cuts are necessary
as the companies prepare for new wireless models expected to be unveiled late in
2000. Like Research in Motion Ltd.'s Blackberry device, these gadgets could
sport an "always on" feature that automatically downloads e-mail and
data from corporate systems.

"I don't see this as the end of the world," he said. "Late in
the year, they are coming out with an "always on" device, so its
better to sell these (older PDAs) for little or no profit if it frees up the
channel." Since March 27, when Palm warned that a slump in orders would cut
fiscal fourth-quarter revenues, its shares have underperformed the S&P 500
index by about 53 per cent.

(C) Reuters Limited 2001.