Palm’s (PALM) new phone, the Pre, goes on sale Saturday, and the gadget gods have spoken: It’s a very good phone, they say, but not as good as the iPhone, which is getting an update next Monday. But will it sell?
Our Henry Blodget says the Pre will bomb and that Palm investor Elevation Partners should get out. Why? Because it’s not as good as the iPhone, because Palm’s webOS developer platform is too barren, and because Palm is very small and can’t “become one of the big dogs.” We’d add that Palm is basically unknown outside the U.S., so trying to compete with Nokia overseas is not going to be fun.
All valid points. But Henry is not necessarily right on this one. Here’s three reasons why the Pre might not bomb, and why Palm might be OK.
Because most people still buy their phones from their carriers, and Sprint Nextel (S) is still a big carrier. At the end of March, it had 25 million “post-paid CDMA” subscribers, the bucket of Sprint’s customer base that is most likely to buy a Pre. Let’s assume 20% of those, or 5 million people, will be eligible for an upgrade in the next 6 months and will want to stick with Sprint. Even if only 10% — conservative, we think — of those 5 million buy a Pre, that’s still 500,000. Not a bomb. If smaller T-Mobile can sell 1 million GPhones, Sprint could very easily sell 1 million Pres. (Then Palm opens the Pre to Verizon, etc.)
Because even now, two years post-iPhone, people buy phones for lots of reasons, not just the platform. If Apple and RIM were the unstoppable kings, they’d have 90% of the worldwide smartphone market, not 30%. Some people may decide they want multi-touch zooming, a physical keyboard, and a real headphone jack, and use that as justification to buy a Pre instead of an iPhone or BlackBerry. Some may like the sliding design, or the way it looks. The mobile market has not been nearly as efficient as picking a true winner as the MP3 player or PC markets, so a new entrant isn’t necessarily screwed.
Because Palm’s small size means that even modest success is considered big success. Over the last four quarters, Palm sold about 3 million phones and reported $945 million in total revenue. If it can sell 1 million webOS devices in the next four quarters at an average wholesale price of $400 — for $400 million in total revenue — that will be a significant improvement. (One potential problem: Because Palm is going to spread Pre revenue reporting over 2 years, like Apple does with the iPhone, it might not look as impressive to the untrained eye.)