Palm Fights From the Shadows

The smartphone maker's new ad campaign aims to make its Treo smartphone a contender.
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Palm

(PALM)

is betting that the $25 million it's spending on a six-month, worldwide marketing campaign, will help put the smartphone maker back in to the limelight.

With the more glamorous BlackBerry Pearl phone from

Research In Motion

(RIMM)

and

Samsung's

latest phone, BlackJack, dominating print and television advertising, Palm's Treo 680 smartphone seemed to have faded into the background.

Now, Palm is determined to get the Treo out from under rivals' shadows.

The Sunnyvale, Calif.-based company said Monday that its campaign aims to "generate mainstream awareness and attract new users to the Treo smartphone line." The spotlight will be on the Treo 680, and the overall campaign will include print, online, mobile and viral-marketing components. (Viral marketing is an advertising strategy that uses world of mouth and similar techniques to create buzz for the brand.)

The Pearl and BlackJack both received rave reviews from CNet, but the Treo 680 was rated lower for the poor quality of its camera and lack of Wi-Fi support. Palm also has faced a certification delay on another Treo model, the Treo 750.

But with its latest campaign, Palm could fare better than expected. While Palm has been overshadowed by RIM in the enterprise market, both RIM and Palm are now targeting a new market segment: consumers. It is one segment where Palm still has a chance to get ahead.

Shares of Palm were down 6 cents to $14.14 on Friday. The company is now trading closer to its 52-week low of $13.78, while rival RIM touched its 52-week high of $142.66 on Oct. 24. Shares of RIM were up 1.1% or $1.43 to $135.44.

Smartphones are a fast-growing market. By 2010, 18% of all the cell phones sold worldwide will come from smartphones, up from 4% this year, according to consulting firm Creative Strategies.

Worldwide shipments of PDAs and smartphones combined totaled 42.1 million units in the first half of 2006, a 57% increase from the same period last year, according to research firm Gartner. Smartphone shipments alone grew more than 75% to reach 34.7 million units.

Much of the growth in the future will come from an expansion of the consumer market for smartphones, says Tim Bajarin, principal analyst with Creative Strategies. "The big shift over the next three to five years will be to create more intelligent features aimed at this strong growth segment," he says.

And that's where Palm's extra push to reach out to consumers could count. It plans to work with brands and companies such as Fandango,

The Onion

, Orbitz,

Google

(GOOG) - Get Report

and

Yahoo!

(YHOO)

.

Palm also said it will have SMS-activated kiosks in major metropolitan cities to market the Treo.

The company is also deploying "street teams" with bright-colored Treo clothing to stimulate what it calls "buzz and excitement" around Treo smartphones.

It's still a tough battle for Palm. The Treo 680 phones are selling well, but the color models of the phone may be out of stock, wrote Tim Long, an analyst with Bank of America Securities, which makes a market in Palm and RIM shares and has a banking relationship with the Palm.

"We are disappointed that Palm doesn't have an adequate supply of 680 color devices on hand for immediate fulfillment during the peak holiday season, especially as the company ramps up its marketing campaign," Long wrote in his research report.

Palm's online store shows an estimated ship time of one to two weeks, and most retail locations do not expect more units for another week or two, wrote Long.

Still, the consumer market still represents one of the best shots for Palm to move ahead of the competition. "RIM will have a tough time with consumers because they don't offer consumer-friendly applications or features like better Web browsing experience," says Bajarin.

"The transition for BlackBerry will be harder than the Samsungs and the Treos," he said.

Palm will report its second-quarter fiscal 2007 earnings on Dec. 19, and RIM will report third-quarter fiscal 2007 earnings on Dec. 21.

On Nov. 27 Palm

lowered its guidance and said it expects revenue of $390 million to $395 million, instead of $430 million to $450 million for the second fiscal quarter, because of a delay in certification of its Treo 750 phone by a carrier.