Palm Goes Low-Tech With Latest Gadget

"We understand that [Palm has] gone back to the drawing board and designed [the Zire] from ground up to deliver strong gross margins at the outset," said J.P. Morgan analyst Paul Coster.

Palm's Christopher says the new device will be profitable on a per-unit basis from the start. "We're making a profit on each individual unit at $99," Christopher said. He added that Zire sales will not be "dilutive at all to the overall company margins," declining to give out specific figures.

J.P. Morgan's Coster believes the company is likely to see more than 25% gross margins on the Zire. That's quite a few points below the company's targets of around 35% by the end of the year. The company expects two other higher-priced and technology-centric devices to pick up the slack.

As for the Zire, simplicity is the key: The 3.8-ounce, white plastic-molded device does away with two of the four buttons that are typically built into other Palm devices. Behind the plastic is the current generation's operating system and about two megabytes of storage capacity.

It will be sold at chain stores including Target, RadioShack and Kmart -- and for the first time, a Palm handheld will be sold on the main showroom floor at the stores, sharing shelf space with calculators, scissors and other office supplies, rather than behind locked, glass-enclosed cases, where handheld computers are traditionally situated.