JANUARY 8, 2010
Palm Faces Uphill Battle to Grow in Crowded Smart-Phone Market

Palm Inc. struck partnerships with the two largest U.S. wireless carriers, as it struggles to spark sales of its smart phones and turn itself around.

The company unveiled new versions of its two flagship phones Thursday and said it would offer them exclusively through Verizon Wireless later this month. That followed news earlier this week that AT&T Inc. would carry two Palm devices.

Thursday's announcements at the Consumer Electronics Show were muted compared with a year earlier, where Palm used the gadget conference to unveil its answer to the iPhone, the Palm Pre.

But the company has seen its share of the smart-phone market fall, to 10.8% in the third quarter from 17.5% at the start of 2008, according to research firm Nielsen Co. "Now it's time to put up or shut up for the company," said Nielsen analyst Roger Entner.

The moves are the Sunnyvale, Calif., company's latest effort to improve growth in the brutally competitive smart-phone market. While Palm was a leader in personal digital assistants in the late 1990s and an early player in smart phones, it has lost sales to Research In Motion Inc.'s BlackBerry and Apple Inc.'s iPhone.

After an investment by private equity firm Elevation Partners over two years ago, which brought in new management such as ex-Apple executive Jon Rubinstein, Palm launched a new Web-based mobile operating system and two phones dubbed the Palm Pre and the Palm Pixi.

But both devices, which became available last year through Sprint, have had middling success. Last month the company said it shipped 783,000 of its phones to retailers but that consumers only snapped up 573,000 of those devices.

Palm's devices lack a critical mass of mobile applications even as mobile apps sold on Apple's App Store have helped power the iPhone's popularity. And Palm's software and devices not only have to stand out against Apple and RIM's BlackBerry, but also against the burgeoning mass of phones based on Google Inc.'s Android software. Earlier this week, Google unveiled its own branded phone which it plans to sell online directly to consumers.

"As we expand our distribution, it makes our discussion a little bit easier with developers," Palm's Mr. Rubinstein said in an interview Thursday.
A successful launch at Verizon and AT&T will be important for Palm to gain the confidence of more app developers, but analysts say Palm may have a harder time standing out as those carriers also add more smart phones to their list of devices.

Palm remains in tough financial straits. It posted an $85.4 million loss in its most-recently reported quarter.
Palm has issues "that still have to be fixed. Winning carriers may not fix that," said Kaufman Bros. analyst Shaw Wu.

Write to Yukari Iwatani Kane at yukari.iwatani@wsj.com and Roger Cheng at roger.cheng@dowjones.com

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