June 11, 2002 4:45 PM PDT

Palm reading: Lower prices ahead

NEW YORK--Palm hopes to improve its fortunes by introducing three new handhelds this fall, including one designed to sell for $100, interim Chief Executive Eric Benhamou said Tuesday.

"The $100 price point has proven significant for many products, like the walkman and the DVD player," Benhamou said, speaking at CIBC World Markets' communications conference here. Palm has in the past seen prices of its low-end handhelds dip to that level, although that was not their originally intended price.

Benhamou said Palm can design a product to be sold at that price and still meet its profit-margin targets.

The new products will also benefit the company down the road as their owners decide to upgrade, Benhamou predicted. "First-time Palm users want to upgrade one year to 18 months later," he said, citing company research.

Benhamou added that the lower price should give the company a market of four times as many consumers. The company has sold 17 million Palm-branded units.

The cost of Palm devices should continue to come down as color screens become better and cheaper, Benhamou said.

In response to questions about whether the new, low-cost device would have wireless e-mail capabilities, Benhamou said the company planned to start with a very basic product and move to such capabilities later. Palm has also said that one of its new products for the fall will be a handheld running Palm OS 5 that is capable of making phone calls.

Benhamou indicated that Palm plans to offer units with built-in keyboards in the future, something competitor Handspring suggested Monday will be a staple of its future devices.

Benhamou's talk at the conference outlined what he calls "chapter two" of the company's development. Benhamou took the reins as interim CEO in November, saying Palm had gotten over the worst of its problems but had several challenges ahead.

However, the company is facing weak demand and warned recently that sales and earnings will fall short of estimates for both the quarter that ended in May as well as the current quarter, which runs through August.

The other main challenges for chapter two will be increasing the company's appeal to businesses, an issue Palm is addressing through partnerships such as the one with health care specialists McKesson, announced Tuesday. Palm has said it plans to announce two additional tie-ups by the summer.

The company has also committed to finishing the separation of its operating system unit from the division that sells Palm-brand handhelds.

Benhamou said the company expects to complete that move by the end of this year. Palm is also expected to name a permanent CEO for the hardware unit soon.

News.com's Ian Fried contributed to this report.

 

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