Palm Inc.’s (PALM) new smartphone called Pixi, a lighter and cheaper version of the Palm Pre will be available via Sprint Nextel Corp. (S) beginning Nov 15 for just $99.99. The phone will come with a two-year contract after a $50 instant rebate and a $100 mail-in rebate. The phone will also be available through Best Buy (BBY), RadioShack (RSH) and Wal-Mart (WMT) stores.
 
Palm’s Pixi runs on Palm’s WebOS. The phone has many features including 8 gigabytes of built-in memory, an exposed QWERTY keyboard and personalization features. However, it does not support Wi-Fi capabilities.
 
Alhough Palm has priced the Pixi competitively to attract more customers, we remain unsure about the future of Pixi. Amazon (AMZN) currently sells the Pre with a two-year contract at just $99. Sprint started selling the Pre smart phone in June and currently sells it for $150 after rebates and a two-year contract.
 
Moreover, in comparison to the Pre, Pixi appears to be weak. Pixi has a 2-megapixel camera, compared to Pre’s 3-megapixel version. It also has two small speakers compared to Pre’s single large one. Moreover, Pixi has a slower processor with a smaller screen than the Pre.
 
Although Palm is trying to snatch customers from its larger competitors, Apple Inc. (AAPL) and Research In Motion (RIMM), we believe that Palm’s weak products will not allow it to achieve the desired result.
 
Moreover, Apple’s price cut on its 3G iPhone to $99 from $199 and the launch of the new iPhone 3GS for $199 will be a further hindrance to Palm Pre’s sales growth.
 
We believe Palm’s competitive position has been permanently damaged by its antiquated offerings and the company is still selling only a small fraction of Pre phones to smart-phone users. Meanwhile, both Research in Motion’s BlackBerry and Apple’s iPhone have grown a loyal customer base. Apple, in particular, continues to expand market share.
 
We maintain Our Underperform rating on PALM. Shares of Palm fell 4.3% and closed at $14.28 yesterday.
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