Palm Slaps Back at Handspring in Handheld Price War

Head for cover, the handheld price wars are heating up.

Last week Handspring (HAND Quote) lobbed a grenade when it cut $50 off the price of its Visor Deluxe product (now $199) and slapped a $50 rebate on its Visor Platinum.

Palm (PALM Quote) answered back with a rocket launcher over the weekend, blowing the price of its Palm VII handheld to bits. The Palm VII can wirelessly connect to the Internet through the Palm.net Internet service and now costs a Visor Deluxe-matching $199, down from $399. Additionally, consumers can take advantage of a $100 Palm rebate to get that Palm VII for a shell-shocking $99.

Lehman Brothers analyst Joe To attributed the high-end move to an evacuation of the Palm VII product ahead of a fall release of a newer wireless-Internet surfing Palm product. To labeled the cuts "much more severe than [he] had expected" and responded to the new Palm VII prices by dropping his price target on Palm to $11 from $25 and taking Handspring's targets down to $18 from $28 in a Monday research note. His firm has not done recent investment banking for Palm.

In recent trading, Palm fell 70 cents, or 9.1%, to $7.03, on higher-than-average volume, while Handspring dove 56 cents, or 5.1%, to $10.39 on minimal activity.

With Palm and Handspring ravaging their high-end product line margins to gain a few inches of market share, it's likely the two soon will head toward their lifeblood territories -- the Palm V and traditional Visor. UBS Warburg analyst Don Young expressed concern in a research note last week that handheld demand is moving in the wrong direction for the high-growth consumer electronics rivals. Young's handheld sales tracking showed a 6% decline in demand for the week of April 15 vs. the same period a year ago -- though his numbers admittedly did not incorporate sales from Palm's recently released expansion slot model m500 and color-screen m505 products.