What Palm Needs to Do Next

This column was originally published on RealMoney on June 4 at 3:08 p.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

Palm(PALM Quote) faces a short list of product-development challenges at the moment that illuminate the likelihood of its making a successful turnaround. Projected probability of such a turnaround is closer to none than slim, even with the fresh private equity backing announced this morning.

The Smartphone Landscape

Palm used to be competitive during an era when global sales of personal digital assistants, or PDAs, were in the 10 million to 15 million unit range and the Palm OS was a unique selling point. In 2007, smartphones are snuffing out PDAs as a separate product category; this category describes mobile phones equipped with an operating system capable of running sophisticated applications.

Smartphone sales in 2007 are going to be roughly 100 million units. The Palm operating system has become effectively obsolete and the company is now forced to compete on hardware.

Major Palm rivals now comprise Symbian, Windows and Linux OS models from Nokia(NOK Quote), Motorola(MOT Quote), Samsung and Sony Ericsson (the joint effort of Sony(SNE Quote) and Ericsson(ERIC Quote), in case you weren't sure). The smartphone market, once defined by Nokia, has seen a recent influx of successful models from Samsung and Motorola. Add to that Research In Motion's(RIMM Quote) Blackberries and Apple's(AAPL Quote) iPhone and you get about half-dozen vendors splintering a smartphone market into several sizeable chunks.

The major niches are:

• Nokia: megaphones featuring 5 megapixel cameras, WiFi, GPS, and/or a gigabyte or more of internal memory;
• Sony Ericsson: touch-screen focus;
• Samsung and Motorola: somewhat lighter features in 10 mm to 12 mm thick miniature package weighing 115 grams or less;
• Research In Motion: email phone expertise; and
• Apple: high-end multimedia device focusing on music and photos

The smartphone market is going 3G globally in 2007. The last 2G holdouts in affluent markets, AT&T(T Quote) and T-Mobile, are finally transitioning to W-CDMA models by the end of 2007. Apple's iPhone is the last notable high-end smartphone launching without 3G support. It will mop up the North American customers not demanding 3G in their smartphones.

Consumers in Europe and most Asian markets already demand not only 3G, but increasingly ask for GPS and/or WiFi in their smartphones. Lacking that, they want smartphones slimmer than 12 mm.