Palm Pre set to upstage Apple iPhone on June 6

May 19, 2009, 2:19 PM UTC

After months of bluster, poaching and shots across the bow, this year’s battle of the smartphones is set to begin.

Sprint (S) on Tuesday announced that it will begin selling Palm’s (PALM) long-awaited Pre on June 6 — two days before Apple’s (AAPL) big annual developers conference and precisely at the iPhone’s price point: $199, after rebate, for a two year contract.

The Pre — Palm’s answer to the iPhone — is seen by many as the most direct challenge yet to Apple’s dominance of the touchscreen smartphone market.

It’s also viewed as a bet-the-company product for Palm, which once owned the handset market but has been steadily losing share, first to Research in Motion’s (RIMM) BlackBerry, then to Apple’s iPhone.

Palm’s share price, which was bouncing around $17 in Oct. 2007, fell as low as $1.42 last December before climbing back as word spread that the new device might be a winner. The stock closed Monday at $12.06.

The Pre was first unveiled in January by Palm chairman Jon Rubinstein — one of Steve Jobs’ closest aides for nearly 16 years and now among Apple’s fiercest rivals. His device bore an uncanny resemblance to the iPhone, including the ability to interpret multitouch gestures hitherto seen only on the iPhone and iPod touch. It also had several features Apple customers had been clamoring for, chief among them, cut-and-paste and a physical keyboard.

Some attributed the resemblances to the number of former Apple employees on the Pre team — including senior vice president for product development Mike Bell (a 16-year Apple veteran), director of software Chris McKillop (of the iPhone and iPod team), and spokeswoman Lynn Fox (out of Apple PR). In addition, Palm received a $325 million cash infusion from Elevation Partners a few weeks before the iPhone was launched. One of those partners is Fred Anderson, the former Apple CFO and board member who left the company in the Apple backdating scandal.

All of which may help explain the heat in Apple COO Tim Cook’s replies when asked about the Pre at the company’s last two quarterly earnings calls.

“We think competition is good,” he said in January. “It makes us all better. And we are ready to suit up and go against anyone.

“However,” he added, his voice rising, “we will not stand for having our IP [intellectual property] ripped off, and we’ll use whatever weapons that we have at our disposal.” (link)

Palm was quick to respond to what it perceived as a shot across its bow.

“If faced with legal action,” a spokesperson told Digital Daily, “we are confident that we have the tools necessary to defend ourselves.”

In March, Apple unveiled the iPhone 3.0, a new operating system that includes some of the features the Pre will have, including cut-and-paste and, through push notification, something like the ability to run third-party programs in the background.

The company is also widely expected to introduce new iPhone hardware this summer, perhaps as early as June 8.

The Pre will be available at Sprint stores, Sprint.com, Best Buy, Radio Shack, and select Wal-Mart stores.

In a note to clients, Piper Jaffray’s Gene Munster said that distribution network is wider than expected and may help offset what he describes as the Pre’s “Achilles heel” — Sprint’s relatively small addressable market of subscriptions. Sprint has about 35 million post-paid subscriptions. AT&T (T), Apple’s exclusive U.S. carrier, had about 60 million subscribers when the iPhone launched.

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