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Palm's Carrier Expansion For Pre, Pixi Could Be Booster Shot

Palm has entered 2010 with new carrier agreements with Verizon and AT&T, an important pair of moves for the struggling handset maker.

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Palm attempted to make a splash last year with the releases of its Palm Pre and Palm Pixi phones, but neither has yet revived the once-powerful vendor's smartphone fortunes as hoped. Palm in December reported shipments of 783,000 of its phones to retailers, but subsequent consumer sales of 573,000 were not exactly eye-popping -- or even close to what, say, Apple moves in iPhone sales.

In its most recent quarter, Palm also reported a steep $85.4 million loss.

According to researcher Nielsen, Palm's share of the smartphone market has shrunk to 10.8 percent as of the third quarter of 2009, down from 17.5 percent at the beginning of 2008. As Nielsen analyst Roger Entner told The Wall Street Journal and other news outlets Friday, it's now time for Palm to "put up or shut up."

Its latest announcements, which were tied to this week's Consumer Electronics Show, suggest Palm intends to do just that. Earlier in the week, AT&T confirmed that it would be releasing not only five new phones based on Google's Android OS, but also two new Palm smartphones with WebOS. Neither AT&T nor Palm have yet confirmed whether that means new phones entirely or AT&T-carried versions of the Pre and Pixi, but the move broadens Palm's reach all the same.

Then, on Thursday, Palm confirmed that it would release versions of the Palm Pre and Palm Pixi carried by Verizon.

The Verizon phones, dubbed Palm Pre Plus and Palm Pixi Plus, include a number of hardware and software improvements over their existing counterparts, which in the U.S. are carried exclusively by Sprint. Palm said the Verizon phones would be available later in January, and that it would be providing software upgrades to earlier Palm Pre and Pixi phones in February.

Palm has also tweaked the webOS platform with some additional updates in order to steer developers toward webOS.

Despite their lukewarm sales, both the Palm Pre and Palm Pixi have been favorably reviewed, and were among last year's top-rated handsets (see Everything Channel's 10 Coolest Smartphones of 2009). If adding Verizon and AT&T doesn't help Palm work through all of its problems immediately, they'll expand access to both Pre and Pixi and also help Palm get over a possible hurdle in having Sprint as an exclusive carrier.

"Were it not for its lack of distribution, inadequate advertising and resulting limited developer community, Palm would be shipping far higher unit volumes than it does today," said Morgan Stanley analyst Ehud Gelblum, writing in a Morgan Stanley research note Tuesday.

Gelblum is among analysts that have taken Palm to task for putting too many of its smartphone eggs in Sprint's basket.

"We believe that much of the scale issues Palm has experienced to date have been a function of its exclusive distribution agreement in the U.S. with Sprint, which despite having deployed advertising dollars to the Palm brand, has seen negative net sub adds for 9 quarters and has had a mixed marketing message in its handset portfolio simultaneously promoting Palm, the Samsung Instinct, HTC Hero and LG Fusion," Gelblum wrote. "However, we expect this to change rapidly in 2010."

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