Palm Pre Supplies Are Scarce in First Weekend of Comeback Bid

By Amy Thomson

June 8 (Bloomberg) -- U.S. shoppers clamored for tight supplies of Palm Inc.’s Pre in its debut weekend, marking an early victory in the phone’s bid to challenge the iPhone.

Sprint Nextel Corp., the Pre’s exclusive wireless carrier, ran out of inventory at some stores, putting customers on waiting lists. Less than 100,000 phones may have sold over the weekend, mostly to current Sprint customers, said Jonathan Atkin, an RBC Capital Markets analyst in San Francisco.

While that’s a fraction of the latest iPhone’s sales in its debut weekend, the Pre is helping restore Palm’s reputation as a mobile-phone innovator. The touch-screen device also may slow the exodus of customers at Sprint, which has lost more than 4 million contract subscribers in the past year.

“They’ll probably sell as many as get produced for the foreseeable future,” said Atkin, who expects Sprint’s shares to perform in line with industry peers and doesn’t own the stock. “What they didn’t have last year was anything truly competitive on the device front.”

Leslie Letts, a spokeswoman for Sunnyvale, California-based Palm, declined to comment on the sales. Sprint isn’t disclosing the numbers, said Mark Elliott, a spokesman for the Overland Park, Kansas-based company.

The Pre supplements its touch screen with a slide-out keyboard, giving it a feature the iPhone lacks. The Pre’s operating system is designed to make switching between applications easier. The device also can combine calendars, contacts and messages from different accounts.

Same Price

Like the iPhone, it synchronizes with Apple’s iTunes music store. The Pre’s $199 price, after a two-year contract and mail- in rebate, also matches the iPhone’s.

Sprint has exclusive rights to the Pre through at least the end of the year. Larger rivals Verizon Wireless and AT&T Inc. have said they’re interested in carrying the phone.

Chicago-area Sprint stores received 30 to 50 of the devices, said Jennifer Fritzsche, an analyst at Wachovia Securities Inc. Some locations expect to get new shipments by June 10, she said. One Best Buy Co. store in New York said it only received three Pre phones.

Apple sold 1 million iPhone 3Gs in the device’s first three days of release in 2008, 10 times the number Atkin estimated for the Pre.

“There’s not quite the base of Palm fanatics as there is Apple fanatics,” he said. The iPhone also debuted in 21 countries. The two weekends are “not quite comparable,” he said.

‘About Time’

Beverly Durham, a 51-year-old insurance claims adjuster from Pasadena, California, lined up outside a neighborhood store before 8 a.m. on June 6, the day of the phone’s release.

“I’ve been a Sprint customer forever,” she said. “It’s about time Sprint came out with a new phone.”

Sprint’s store on Mission Street in San Francisco sold 60 Pre phones within two hours before running out, manager Daniel Chan said. The outlet started a waiting list and will get the next consignment in a few days, he said. About half the people who bought the Pre were iPhone owners, he said.

Misha Vladimirskiy, a 30-year-old photographer from San Francisco, is on that waiting list. He was told he should get his Pre in five days.

“I don’t mind waiting,” said Vladimirskiy, whose last three phones were from Palm.

Estimates Vary

Palm may sell about 150,000 Pre phones over the weekend, said Lawrence Harris, an analyst at CL King & Associates in New York. He has a neutral rating on the stock.

Michael Walkley, an analyst at Piper Jaffray & Co. in Minneapolis, put the number at almost 200,000. He advises buying Palm’s shares. Paul Coster, an analyst at JPMorgan Chase & Co. in New York, estimated weekend sales of more than 50,000.

Palm aims to win back customers for smart phones, a market the company helped create, after losing ground to Apple and Research In Motion Ltd. Palm is expected to post its third straight year of losses and declining sales, according to a Bloomberg survey of analysts.

In 2007, Palm hired former Apple executive Jon Rubinstein, who worked on the iPod, to create the Pre. Venture capital firm Elevation Partners invested $425 million in Palm, buying about a third of the company, and helped guide the development of the new phone.

“So far, it is fantastic,” said Chris Lee, a 28-year-old architect from New York who bought the Pre the first day. “There are some similar features to the iPhone,” said Lee, who gave up his iPhone 3G after eight months of service with AT&T. “But it feels more fresh.”

Palm’s Stock

Palm shares have quadrupled this year on anticipation that the Pre will be a hit. The stock fell 64 cents to $13 in Nasdaq Stock Market trading on June 5. Sprint rose 8 cents to $5.11 on the New York Stock Exchange. Apple climbed 93 cents to $144.67 on the Nasdaq.

Sprint and Palm aren’t alone in releasing new products. The Pre’s debut coincides with Apple’s annual developers’ conference. Cupertino, California-based Apple plans to unveil a new operating system for the iPhone this week.

Apple Chief Executive Officer Steve Jobs has demonstrated a new version of the iPhone the past two years at the conference. Steve Dowling, a company spokesman, declined to comment.

Verizon Wireless, the largest U.S. wireless carrier, is introducing new phones as well, including new BlackBerrys and a model based on Google Inc.’s Android software.

Smart Phones

Smart phones represent a pocket of growth in the wireless industry. The devices made up 23 percent of U.S. phone sales last quarter, up from 17 percent a year earlier, according to research firm NPD Group Inc. in Port Washington, New York.

Smart phones also bring in more revenue for carriers, since customers pay extra for Web access, software applications and messaging.

Sprint requires Pre buyers to sign up for the Simply Everything plan, which includes unlimited data and messaging for at least $69.99 a month. AT&T charges iPhone users the same amount without messaging, according to the company’s Web site. In addition to Sprint stores, Best Buy, RadioShack Corp. and some Wal-Mart Stores Inc. are carrying the Pre.

“For Palm, what’s at stake is its reputation,” said Andy Castonguay, a research director at Yankee Group in Boston. “This is, I think, without exaggeration, a fundamental step forward if the company is going to continue to be relevant.”

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net