Palm's Oddball Phone Packs Shrewd Strategy

Most smartphone vendors are chasing the corporate buyers and/or thirtysomething, relatively affluent consumers who were the only viable market for this product category from 2003 to 2005. There is no shortage of high-end phones laden with seriously futuristic features this winter: 8 GB of memory, 5-megapixel camera modules, near-VGA color displays, GPS and/or Wi-Fi support.

High-end models including the Samsung F700, LG 990, Nokia N-81, Sony Ericsson K850 and Apple iPhone are about to clash over what counts most: massive memory or best-in-class video photography or a GPS/HSDPA combo. The competition in the $400-$700 price category is going to be intense.

But as global smartphone unit volumes balloon to around 120 million in 2007, geeks are not the only targeted consumers. Yet few of the new smartphones take the youth market seriously. Leading vendors have tried to prevent rapid erosion of average sales prices in this category by loading up new models with extremely advanced features. Nobody is much interested in whether a substantial number of consumers would want to buy a $100 smartphone.

Gung-Ho

Except Palm, which has almost nothing to lose. Palm's market cap remains below $2 billion even as investors have added tens of billions to the market caps of Nokia, Apple and RIMM in recent weeks. Its inability to compete in the high-end race has become painfully obvious, and Centro finally represents an effort to come to terms with this fact.

Forget the goal of squeezing a 5-megapixel camera phone into a 12-mm chassis by the fourth quarter; it can't be done with Palm's resources. And if it can't be done, might as well go where the classy models don't dare venture, cheap and chirpy.

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At time of publication, Kuittinen had no positions in any of the stocks mentioned in this column, although holdings can change at any time.

Tero Kuittinen is managing director and senior analyst for Avian Securities, a brokerage firm specializing in technology companies. Although Kuittinen is an employee of Avian Securities the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Avian Securities, nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.