Centro Cutting Into Treo Sales

According to financial analysts, Palm’s Centro smartphone is having an adverse affect on sales of the Palm Treo.

"We think the Centro is seeing modest success, but this is partially at the cost of higher margin Treo products," writes Citigroups Jim Suva. Suva went on to say, "We believe Centro products carry lower-than-corporate average margins to to the heavy subsidy required to hit the $99 price point. Centro traction may be viewed positively, but we think this will be offset by the negative financial impact." Suva also commented that Palm stands to lose more than RIM with Apple’s iPhone SDK release and entry into the Enterprise market.

The Palm Centro was originally thought of as a low-cost member of the Treo family, but Palm essentially rebranded the device as the Centro. The Centro has been referred to as a "Tiny Treo". While it has a smaller, pocketable form factor, the software package is virtually identical to the more expensive Palm Treo 755p. Palm released the Centro on Sprint Wireless back in October of 2007, months after the release of the Treo 755p was released on the same network. Palm most likely knew that releasing them at the same time would cause cannibalization of the higher priced Treo 755p. After the buzz of the Treo 755p had worn off, the Centro release injected new life into the Palm product line. The Centro has enjoyed modest success at time when Treo sales were slumping. While I’m sure there is some level of cannibalization that has occurred, it would have to be across carriers, thus meaning that a customer would have switch providers. Palm’s latest lineup includes:

  • Treo 755p (Carrier: Verizon Wireless)
  • Centro (Carrier: Sprint)
  • Centro (Carrier: AT&T)
  • Treo 750 (Carrier: AT&T)

It’s unclear how many "switchers" will jump carriers for a device. Not to mention that despite the same software bundle, these two smartphones are not cut from the same cloth. The more expensive Treo, while remaining a tad on bulky side, offers a better build quality than the value priced Centro. While AT&T offers both the Centro and Treo, the latter is the Treo 750 that runs Windows Mobile, while the Centro runs the Palm OS. While it is certainly plausible that some cannibalization has occured, it’s the lack of a new smartphone in the Treo series that is affecting Palm’s margins. The last major release was the Palm Treo 755p and this was seen as an evolutionary product. While the Treo 755p is new to Verizon, it’s release comes 7 months after the Sprint release of the same phone, that’s a significant amount of time when you are discussing mobile technology. Apple’s iPhone was released in June of last year and the company expects to reach the 10 million mark in device sales by the end of 2008.

Palm will announce their fiscal fiscal third quarter results Thursday. Analysts expect Palm to miss Wall Street estimates. As a result Palm shares were down today 18.5 cents or 4.7% at $4.88.


Source: Barrons

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