Comments on: Handheld Prices Unlikely to Drop Further

By writing off this inventory, Palm has come to the conclusion that they will never make any money off it. I'm not sure what is going to happen to the units but they will never appear for sale at any price. Maybe Palm will send them off to be recycled.

What they are trying _not_ to do is flood the market with cheap Palms. They don't want to sell everyone in the U.S. who is interested in buying a Palm a Vx for less than $200. If they did, they would be rid of much of their excess inventory but they also wouldn't sell any m500's for about a year.

So Palm would be in a situation where they had sold all their inventory at below the cost it takes to produce it and leave no one needing to buy their products at prices that do make them a profit. You can find that scenario in my upcoming book, "How to Go Out of Business in One Easy Lesson".

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News Editor
Palm Infocenter

Once the excess inventory is written off, which I believe are mostly parts specific to all older-model handhelds, Palm can try to sell them if below cost (unlikely for custom-made parts), or destroy them like what Cisco had done for its own inventory oversupply.
As to existing finished products, Palm probably will try to sell them over a period of time, and any excess if there's still any left after they become 'unsellable' will go to landfill and get destroyed. Still, I believe Palm should try to sell to the corporate sector at subsidized prices, this way, Palm gets extra cash, gain a foothold on that sector and the retail channel will not be affected by the price war.
As to the possible price war, I understand Palm standpoint, for any price war will carry a long-term effect on what a user will pay for a PDA. The product will get commoditized and the resulting profit margin get so slim like what the cellular phone makers are now experiencing. Furthermore, it will discourage present and future licensees from using the Palm OS as margin get squeezed and the sector become unprofitable.

Tax purposes, unlikely if Palm is to lose money this year. More likely for financial purposes, as the inventory overhang will no longer be reflected in future quarters, and Palm could presumably be back in the black next quarter. And any excess inventory that eventually get sold get credited to profit(the whole amount, not only the profit margin).
Note: I'm no accountant, so I am unsure about accounting rules and principles.

i am a member and I cant figure out where to go on the site to make discount purchase

Log into the PalmOS Developers "Resource Pavilion" at http://www.palmos.com/alliance/resources/ and then click on "Hardware Discount Program".

there is no hardware discount link

I just signed up today.. but I can't find the link

Yes, in order to recieve these prices, a Palm representative must review the paper work. Otherwise, you won't be able to access the page. When I signed up over a year ago, it took about two weeks to process my account.

Also, be aware that there are limits as to how many units you can buy. I think it's three a piece except forthe m505 and m500 which is 1 unit.

Eric Garrido

I had a similar thought. If they sold them with really large discounts they could claim a charitable write-off, dispose of units without taking a total loss and create an expanded Palm user base.

How many people would stick with palm after using it, just so they didn't have to relearn a new product? Once schools get configured for a specific line, they will stay there. It's too big a hassle to replace all the corresponding software.

Once they have students using them in labs and for other projects, the line becomes entrenched. Apple did very well with this strategy with the Apple II. They still have some schools using that stuff. What apple didn't get was people changing to Macs. The economy of Intel based PCs did them in when upgrades occurred.

Looks like Palm is ahead of us, here's another Education-sector initiative:
http://www.zdii.com/industry_list.asp?mode=news&doc_id=PR20010523SFW018A

I imagine that a unit doesn't really cost that much to produce, but when you factor in distribution, marketing, and corporate overhead, those costs add up. They still make a pretty sizeable profit though. The reason prices are so high is because this is a industry of monopolistic competition. If one company cuts its prices, they all have to. Then they all lose profit, so what was the point of cutting prices in the first place? For example, if you lower prices 20%, and only 10% more people buy the handheld at its new, lower price, you just lost some profit. This is why the prices are so high.

In contrast, in the PC market, this has already happened. In the past couple of years, the price of PC's collapsed causing huge havoc for PC companies, if you recall. They are still suffering. This is what would happen to the handheld market if Palm continued to cut its prices.

Peace Out
Alan

Yeah, you're right, except that the handhelds are differentiated. But it is operating like an oligopoly. I think it is probably somewhere in the middle.

Actually, now that I think about it, I think it is more monopolistic competition. Prices are relatively low, except for the new models. Like you said, when new features are added, the prices can rise again. Well, the m505 and New Clie are pretty expensive.

Peace Out
Alan

By the way everyone. Best Buy had the the M500 on sale this past weekend in the SF Bay Area for $329.99.