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Price cut on Palm Pre not a sign of bad sales

Buried amid announcement of the new Palm Pixi smartphone was the news that the price of the Palm Pre smartphone will drop to $150, down from $200, after rebates.

The Pre's price drop came a day after Sprint Nextel Inc., the exclusive carrier for the Pre, said it mistakenly launched an offer for a $100 service credit for new Pre buyers and then quickly revoked the credit.

What gives with Palm and Sprint? Are the pricing moves a reaction to poor Pre sales? If so, could such a reaction foretell a truly cut-rate price for the smaller Pixi and for less than the rumored $99 price tag?

Sprint and Palm won't comment on Pre sales figures, but say they are pleased with sales and called such a price cut a normal move in a crowded smartphone market prior to the holidays. Even Apple Inc. regularly drops device pricing, as it did again today, analysts noted.

Some bloggers and analysts have interpreted the Pre pricing reductions as a signal by Palm and Sprint that they are having trouble taking smartphone market share. The Pre is “not living up to its hype,” commented blogger Jon Ogg in 24/7 Wall Street yesterday.

On the other hand, industry analysts today in interviews were unfazed by the Pre price reduction and declared the Palm and Sprint relationship a healthy one, even if the Pre is not the explosive product that the Apple Inc. iPhone is.

“In an age of high technology, dropping prices rather quickly is not uncommon, as Apple did today,” noted Ramon Llamas, an IDC analyst. The lowered price for the Pre is “not a result or poor sales, I'd say. That's a knee-jerk reaction. If you want to see inventory really move, then price the smartphone below $100.”

Llamas said he is actually “heartened” by the Pre price reduction, especially before the holidays, since it shows Sprint and Palm want to remain competitive with the iPhone 3G, which can be purchased for as little as $100.

The Pre is “not the gangbusters device that the iPhone is,” Llamas added, and the smartphone could be seen as the first device with the new WebOS to “capture the hearts and souls of the Palm faithful.”

Independent analyst Jeffrey Kagan expressed similar views, noting that Palm will likely offer several devices in coming months with other carriers than Sprint. “No one Palm device will be a major breakthrough for any single carrier, and there might be modest sales from every carrier, but taken altogether, those sales will show that Palm can be a strong company again,” Kagan said.

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