Sprint to sell Palm Pre for $200 after rebate

NEW YORK Tue May 19, 2009 7:55pm EDT

1 of 2. The Palm website is seen on the Palm Pre smartphone at the annual Consumer Electronics Show (CES) in Las Vegas, Nevada January 8, 2009.

Credit: Reuters/Rick Wilking

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NEW YORK (Reuters) - Sprint Nextel Corp (S.N) said it will sell Palm Inc's PALM.O long-awaited Pre smartphone starting on June 6 for $199.99 with a two-year service agreement, in line with Apple Inc's (AAPL.O) iPhone price.

Palm shares fell almost 10 percent before recovering as some investors were disappointed the price would match rather than beat the iPhone's price.

Sprint's chief executive said on Tuesday he expects Pre shortages around the launch.

Piper Jaffray analyst Michael Walkley said it was typical that a new high-profile phone would be in short supply around the launch time. But he some Palm investors were probably taking profits after the shares rallied from $3.30 in January to more than $12 in anticipation of the phone.

"Maybe there's a little disappointment about the launch price and the fact they're indicating that they'll have limited supply," said Walkley.

Sprint's Chief Executive Dan Hesse said at an investor conference that the company was expecting to have trouble meeting initial demand for the device.

"We don't intend to advertise it heavily early on because we think we are going to have shortages for a while," Hesse said according to a Thomson Reuters transcript. "We won't be able to keep up with demand for the device in the early period of time."

Pre is expected to help Sprint -- the exclusive U.S. provider until at least the end of the year -- stem customer losses and is seen as Palm's best hope to regain smartphone market share from iPhone and Research In Motion Ltd's RIM.TO RIMM.O BlackBerry.

But some analysts worry the Pre could be upstaged by a new cheaper version of iPhone, which is expected to be announced by Apple as early as June 8. The iPhone sold by Sprint's bigger rival AT&T Inc (T.N).

CL King Associates analyst Lawrence Harris said some investors may be disappointed it will not be available sooner.

"It would've been nicer if the device was out in the market for a longer period before any potential iPhone," Harris said.

Kevin Packingham, Sprint's Senior Vice President for Product and Technology Development, admitted the Saturday launch of the phone was unusual, but not because it was trying to steer clear of a rival's introduction.

"We are using our own playbook on this one. We really weren't looking over our shoulder at what else is happening in this industry," he said. "People are going to look at their handsets different after they try the Pre."

While Pre may stop existing customers of Sprint and Palm from switching to rival phones and service, it would be unlikely to lure away iPhone or BlackBerry users.

"Its going to sell principally into the base, to existing Palm owners and existing Sprint subscribers," Harris said, without giving a specific sales target.

The Pre has touch screen controls, as well as a keyboard that slides out from under the phone. It will run on Sprint's 3G network and feature personal and professional calendars, e-mail and contact lists, the company said.

Palm's Senior Vice President of Marketing, Brodie Keast, declined to discuss details of Palm's application downloading store, one of the more popular services available on the iPhone.

Sprint shares closed up 18 cents at $5.50 on the NYSE. Palm shares were down 38 cents, or 3 percent, on Nasdaq at $11.68, after falling close to 10 percent earlier in the session. The shares were trading at 11.76 after hours.

Palm shares have risen from a low of $3.30 before it announced Pre at the January Consumer Electronics Show, where it was the most talked about device at the event.

(Additional reporting by Ritsuko Ando and Franklin Paul; Editing by Derek Caney and Andre Grenon)

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