Palm investors celebrating too soon?

By Sinead Carew and Franklin Paul - Analysis

LAS VEGAS (Reuters) - Palm Inc stole the limelight at the Consumer Electronics Show by unveiling a new touch-screen phone and mobile operating system that doubled its share price overnight.

But investors may be celebrating too soon.

Analysts gave a thumbs-up to the new Palm Pre smartphone and webOS operating system, but said it was too early to conclude that the long-awaited new products can rescue Palm, which has lost both market share and cachet to Apple Inc's iPhone and Research In Motion's BlackBerry.

They said important questions remain unanswered, including price, how quickly Palm can bring the device to market, and how long the phone would be exclusive to subscribers of Sprint Nextel Corp, the weakest of the top three U.S. mobile services.

"Palm remains a 'show-me' story in our view, with its turnaround dependent upon execution and financial performance beyond webOS and Pre's initial debut," said Mike Abramsky, RBC analyst who reiterated his "sector perform."

At 4.8 ounces, the Pre is light in the hand and smooth to the touch, with a slight curvature to its frame once its slide-out keyboard is deployed. Its black plastic case has only one button, like the iPhone, beneath a big, 3.1-inch touch screen.

The Pre's sleek back has a lens for its 3-megapixel camera, and a hidden tab on the side reveals a USB slot for music, charging and other data. Users can access a full keyboard by gently sliding up the phone's face.

The phone's unveiling drew cheers from a packed auditorium in Las Vegas, but the device was not on the CES exhibit floor as Palm is still putting finishing touches on the phone.

Palm Chief Executive Ed Colligan and Jon Rubenstein, a former Apple executive who helped create the iPod, described how users will be able to keep multiple applications open, such as email, maps, photos, and move between them. Pre perceives applications as "activity cards" that users can flip through on the touch screen, Palm said.

Rubenstein was brought to Palm by private equity firm Elevation Partners, which bought a 25 percent stake in the company for $325 million in June 2007. The phone was developed under his watch, and analysts said it looked strong enough to challenge the iPhone, BlackBerry and handsets using Google Inc's Android operating system.

PAST FAILURES

Shares of Palm jumped to as high as $6.58 on Friday, from $3.30 before the announcement on Thursday. RBC's Abramsky had raised his price target to $3.50 from $2.00 after the news.

CL King analyst Lawrence Harris said Palm's share vault was due to short covering, as well as excitement over what he called an "intriguing device." But he also had questions about Pre.

"Apple is not going to be staying in one place. Neither will Google. Neither will Research In Motion," he said, adding that it was unknown how well Pre would compete with a new iPhone he expects Apple to bring out around mid-year.

Harris said Pre's high quality suggested it could command a high price, but Palm would need to stick as close as it can to the iPhone's $200 price tag, which set a benchmark for U.S. smartphones when it came out last July.