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At the height of the 2000 tech bubble,

Palm

(PALM)

looked unstoppable. Its shares topped $95 and its flagship Palm Pilots became synonymous with digital handheld organizers.

The company has since fallen on hard times.

Palm

has suffered through two years of quarterly losses and is quickly burning through its cash reserves. The company's debt outstrips its assets, and analysts expect quarterly losses to continue through 2010. A $425 million investment by

Elevation Partners

, a private equity shop that counts U2 frontman Bono among its partners, has kept the firm limping along.

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Next week, Palm will launch its latest

mobile phone

, the

Pre

, a touch-screen device that will compete with

Apple's

(AAPL) - Get Report

iPhone and

Research in Motion's

(RIMM)

BlackBerry line. Palm needs this product to be a hit with consumers to stay viable.

Palm's stock price has more than doubled this year in anticipation of the Pre, which some have labeled the "iPhone killer." That seems like a lofty expectation for a phone that has had little marketing support and lacks the blockbuster applications of the iPhone.

Sprint Nextel

(S) - Get Report

will sell the Pre exclusively when it hits the market on June 6. With only 48.3 million subscribers, Sprint lags behind

AT&T

(T) - Get Report

and

Verizon Communications

(VZ) - Get Report

, which each have more than 75 million customers. Launching on Sprint's network means fewer people will be able to grab a Pre without the hassle of switching networks and breaking contracts.

The Pre has a few things working for it. Its $200 price, after a rebate and service contract, is comparable with those of iPhones and some BlackBerry models.

The device will have a solid distribution network. Two of the biggest retailers,

Best Buy

(BBY) - Get Report

and

Wal-Mart Stores

(WMT) - Get Report

, will sell the Pre.

RadioShack

(RSH)

also plans to dust off some shelf space for the phones.

Still, the service network will play a crucial role in the Pre's success. If the phones could run on multiple networks or one of the larger ones, the outlook would be brighter for Palm.

The company's future depends on the Pre. Palm has little cash or assets to serve as a backstop if the Pre fails to catch on.

Apple and Research in Motion are more stable bets for investors trying to buy a stake in the cellphone market. Their shares are cheaper than industry averages and offer returns on equity of 27% and 39%, respectively.

Palm is rated "sell" by TheStreet.com Ratings, with a grade of E-plus. Not to disparage Bono's financial analysis or his standing in the world of high finance, but Palm simply isn't worth the risk.

Prior to joining TheStreet.com Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level II CFA candidate.