John Paczkowski

Recent Posts by John Paczkowski

Good Luck Competing on the iPhone’s Home Turf, Palm

palmhailmary_thumbAfter plunging last week to their lowest level in more than a year, Palm’s shares have come back slightly on news of the company’s distribution deal with AT&T. Investors, it seems, are hoping the deal will revive Palm’s flagging smartphone sales and ease the nasty inventory problem that has developed over the past few months.

But analysts aren’t so sure. In a note to clients this morning, Kaufman Bros. analyst Shaw Wu wondered just how much good the AT&T (T) deal will do for Palm (PALM) given the pricing of its smartphones. The company is selling the Pre Plus and Pixi Plus for $149.99 and $49.99, respectively, with a two-year service agreement and after a $100 mail-in rebate. Hardly a compelling proposition when the prices of competing devices like Apple’s (AAPL) iPhone and Research in Motion’s (RIMM) BlackBerry are significantly lower.

“While we are pleased to see PALM expand its footprint, we are unsure how meaningful the impact will be as we believe AT&T is the most competitive carrier out there being the exclusive partner for iPhone in the U.S,” says Wu. “We believe PALM’s price points are arguably too high when one can get an iPhone 3G for $99 and a BlackBerry for as little as $9.99.”

Exactly. And beyond price, there is the issue of AT&T’s relationship to the iPhone, which has spiked both its subscriber numbers and wireless data revenue since the carrier first began peddling it. Is AT&T is going to put the Pre and Pixi out in front, given what the iPhone has done for the carrier’s financials? Does Palm’s AT&T deal include a commitment to aggressively market and sell its devices? Because it’s going to need one if it’s to compete with the iPhone on its home turf.

As Palm CEO Jon Rubinstein observed on the company’s latest earnings call, launching a pair of new smartphones on a carrier that’s already heavily invested in a hero device–as Verizon (VZ) is with Droid and AT&T is with the iPhone–is no easy task. Said Rubinstein: “If we could have launched at Verizon prior to the Droid, I think we would have gotten the attention the Droid got.”

But you didn’t. And now you’re launching on AT&T after the iPhone, a device with far greater critical mass than Droid. Why will things be any different this time around?

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik