Palm Pre Will Fail, Says Analyst

Amid giddy Palm Pre speculation, adoration and the creation of device-specific Web sites (that’s you, Everything Pre), comes a much more dismal viewpoint on the device’s fortunes. According to Collins Stewart analyst Ashok Kumar, Palm Inc. has reduced its production order of the device. Not to create a buzzy artificial shortage, mind you, but rather because Palm’s just not going to be able to sell very many of them.

One main reason for that is the weakness of the Pre’s exclusive carrier, Kumar noted: “Sprint is the only major carrier that has signed on to sponsor the Pre platform. Sprint, which has only a third of the subscriber base of either AT&T or Verizon, has been losing customers due to structural problems,” he writes.

No new news there, we must point out. So what does it mean?

“In our opinion, it is highly unlikely customers of AT&T or Verizon will switch to Sprint,” he continued. “If Sprint does not match or beat AT&T’s subsidized iPhone price of $199, which translates to a subsidy in excess of $200, the Pre is DOA.”

However, the price tag might not be an issue. As we reported yesterday, global supply chain watcher iSuppli pegs the hardware cost of the Pre at $138 and says Palm will sell the device to Sprint-Nextel Corp. for $300. Sprint will in turn subsidize $100 of that and sell it for $200. Or even $199.

But problems lie within the device itself, Kumar said, so the Pre is not off the hook. “Multiple hardware and software issues” mean that the company’s goal of shipping 1 million units in the second half of 2009 is “highly unrealistic” as users become frustrated by the bugs, he said.

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