Palm Introduces Small, Low-Cost Smartphone

Palm Inc. (PALM) introduced its smallest smartphone Thursday, making its first push into the low end of the mobile market in a bid to revive growth prospects and offer a cheaper alternative to Apple Inc.'s (AAPL) iPhone.

Hoping to entice consumers looking for a low-cost upgrade, Palm has priced the new "Centro," a smaller and lighter version of its Treo smartphone, to sell for about $100.

Both devices feature a full keyboard, touch screen and the ability to read and send e-mail or manage documents and spreadsheets.

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The Centro weighs only 4.2 ounces and is a bit bigger than a credit card. It will sell exclusively through Sprint Nextel Corp. (S ) for the rest of the year in the United States.

Palm executives say the Centro is targeted at traditional mobile phone users who want a more powerful device at a moderate price. The Treo tends to cost about $300 and above.

"Palm Centro has the power of a broadband smartphone at the price of a standard 12-key phone," Ed Colligan, president and chief executive officer of Palm, said in a statement.

Although executives say the Centro is not meant to compete directly with the iPhone, which costs four times as much, it's hard to not compare the two, since they both have a touch screen, can surf the Web, manage photos, music and e-mail.

Colligan said the Centro compares more with the BlackBerry Pearl from Research In Motion Ltd. (RIMM ).

Palm declined to say which other carriers might sell the Centro after Sprint's 90-day exclusivity period expires. Apple has an exclusive multiyear iPhone contract in the U.S. with AT&T Inc. (T )

Jupiter Research analyst Michael Gartenberg said the Centro is "not particularly hip or cool," but the large swath of phone buyers seeking multimedia and business applications at a low price may follow their wallets.

"You may very well have some iPhone buyers who say 'I love the concept and the phone, but $399 is out of my price point. But $99, I can afford,"' Gartenberg said.

However, he said he laments Palm's decline from its former position as an innovator in handheld devices. The Treo line continues to run on aging Palm operating system software, and it has lost the buzz it once commanded.

"This is the company that defined the cool, usable smartphone, but has fallen behind what its competitors have been offering in terms of design," said Gartenberg. "The mantle of uber-cool phone has passed from Treo to iPhone."

The Centro's introduction comes as a complex year for Palm draws near its close.

It suffered a public relations nightmare with the Foleo, a much-hyped portable computer that was harshly criticized when it was unveiled in May and abruptly canceled in September, just weeks before it was to expected to ship.

The Foleo suffered the wrath of several technology blogs that saw the product as disappointing.

After Palm said in August that the Foleo would be delayed by software issues, Deutsche Bank analyst Jonathan Goldberg told Barron's: "There's something wrong with the company."

Shareholders have soured somewhat on the stock, which is down 16 percent over the past six months.

Still, analysts say the stock may deserve watching as it enters a transition phase, now that Palm has sold a 25 percent stake to private equity firm Elevation Partners and brought in former senior Apple executive Jon Rubinstein as executive chairman.