Palm slashes prices again

May 11, 2001: 2:33 p.m. ET

Deep discount in Palm VIIx is latest volley in industry price war
By Staff Writer Richard Richtmyer

NEW YORK (CNNfn) - Handheld computer maker Palm on Friday launched another offensive in the price war against its smaller competitor Handspring, slashing the price of one of its high-end devices by more than 33 percent.

Beginning Friday, Palm said it lowered the price of the Palm VIIx to $199 from $299.

The Santa Clara, Calif.-based company also currently is offering a $100 rebate program for the Palm VIIx if customers sign up for one year of the company's Palm.Net wireless service at a subscription rate of either $24.99 or $44.99 per month.

It was the latest and deepest price cut the company has made in recent months as part of its effort to move out a glut of inventory that has been sitting on retailers' shelves. In April, Palm slashed prices on a range of its products.

The company, which is the leading supplier of handheld computers, has warned investors that the buildup of inventory, combined with costs associated with the rollout of its latest products, will result in an operating loss for the company in the current quarter.

Earlier this month, Palm introduced its latest handheld computers, the Palm m500 and the Palm m505, which sport new features such as color screens and expansion slots that allow for connections to other electronic devices. They are expected to begin shipping in volume in the second half of the fiscal fourth quarter, which ends May 31.

However, the new-product introductions coincide with a sharp drop in demand for handheld computers.

In addition to the deteriorating market conditions and the difficult product transition, Palm has been facing increased competition from other vendors of devices that run on the Palm operating system, such as Handspring and Sony, as well as the recently introduced PocketPC, computers powered by the newest version of Microsoft's handheld computing operating system.

Handspring -- whose "Visor" line of handheld computers garnered roughly 13.9 percent of the global market share last year, according to a study done by market research firm NPD Intellect – has vowed to keep pace with whatever pricing moves Palm makes.

Earlier this week, Handspring slashed the prices and began offering rebates on two of its most popular products, reducing the price of its Visor Deluxe, to $199 from $249 and offering $50 rebates on purchases of its new Visor Platinum, which currently is priced at $299.

Shares of Palm (PALM: up $0.36 to $7.86, Research, Estimates) were trading nearly 4 percent higher on Nasdaq Friday afternoon. Handspring (HAND: up $0.18 to $11.10, Research, Estimates) shares also were on the rise.

J.P. Morgan Chase analyst Paul Coster initiated coverage of both companies Friday. He set a "buy" rating on Palm shares and a price target of $10. On Handspring, he set a "market perform" rating and a $12 price target.