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Eyes on Palm

As the Dow Jones Industrial Average neared its all-time high this morning and investors awaited the latest interest-rate announcement from the Federal Reserve, the eyes of the wireless industry were focused on Palm Inc. , which will report its first-quarter earnings tomorrow after markets close.

Faced with stiffening competition from rivals releasing lower-priced smartphones, including BlackBerry 's BlackBerry Pearl, the Motorola Inc. (NYSE: MOT) Q and the E62 from Nokia Corp. (NYSE: NOK), Palm earlier this month reduced its preliminary earnings estimate by around $30 million. The company now expects earnings for the quarter, which ended Sept. 1, to fall between $354 million to $356 million, well off the predicted mark. (See Going Pro(-sumer).)

Palm's stock dropped by 15 percent in the three months ending Sept. 1.

While the new 700p and 700w Treos have proven popular with many enterprise customers in the United States, overall carrier sales have been slow. In addition, prices for the Treo have remained higher than the new models from other manufacturers -- a factor president and CEO Ed Colligan addressed in announcing the reduced earnings estimates. (See Nokia, RIM & Moto: 'Prosumer' Trinity.)

"We will soon address the market dynamics responsible for our first quarter revenue shortfall with two major product launches," Colligan said, "one that improves our pricing position and both which extend our carrier relationships to global markets." (See Tracking the New Treos.)

On Sept. 12, at the CTIA convention in Los Angeles, Palm announced the release in Europe of the Treo 750v, which runs on Microsoft Corp.'s Windows Mobile 5.0 operating system. The 750v will be sold by Vodafone, which has not yet announced pricing, but the new model is expected to retail for under $200. It will be the first Palm device to operate over Vodafone's advanced 3G/UMTS network.

The 750v is also expected to be expensive to produce, however, which means it may not help Palm's bottom line. "We believe the new product does little to alter the competitive landscape for Palm," Deutsche Bank analyst Jonathan Goldberg wrote in a research note after the launch.

Ultimately, whatever Palm reports tomorrow, it faces an array of obstacles ahead, including the dwindling lifespan for its Palm operating system, pricing issues, and the slightly dated design of the new Treos. A weak earnings report will only make those challenges more formidable.

— Richard Martin, Senior Editor, Unstrung

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