Palm shares sink after Apple closes iTunes sync

The new Palm Pre cellular phone can be seen in New York June 3, 2009.

NEW YORK (Reuters) - Shares of Palm Inc fell more than 3 percent on Thursday after Apple Inc closed a loophole in iTunes that had allowed the music management software to be synchronized with Palm's Pre phone.

On Wednesday, Apple released an update to iTunes -- which complements the iPod and iPhone devices -- meant to fix software bugs and "addresses an issue with verification of Apple devices."

"It also disables devices falsely pretending to be iPods, including the Palm Pre. As we've said before, newer versions of Apple's iTunes software may no longer provide syncing functionality with unsupported digital media players," said Apple spokesman Tom Neumayr.

A representative for Palm did not immediately respond to requests for comment.

Before the June launch of the Pre, whose introduction has helped revive Palm's fortunes and fueled a sharp increase in its stock price this year, Palm had touted its smartphone as one that "synchronizes seamlessly with iTunes."

"Simply connect Pre to your PC or Mac via the USB cable, select "media sync" on the phone, and iTunes will launch on your computer desktop," the company said in a press release.

Analyst Shaw Wu of Kaufman Bros. said he was not surprised by Apple's move, which he said was "the right thing" to do to protect its intellectual property.

"The last thing Apple needs is someone having access to its hard-earned technology for free," he said in a note to clients. "We view this as a modest negative for Palm as syncing with iTunes was a feature that was touted and we think could impact some customers' decisions."

The Pre can still access music on a user's computer hard drive, and can download songs from Amazon.com's MP3 store directly on the Pre.

Shares of Palm traded at $14.47, down 45 cents, in midday trade on Nasdaq, after hitting a session low of $14.22. The stock is still up more than four-fold so far this year.

(Reporting by Franklin Paul; Editing by Derek Caney and Matt Daily)