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RIM Up, Palm Down, As Smartphone Market Heats Up

Palm is getting squeezed by RIM's BlackBerry device for business users and by Apple's iPhone for consumers, one analyst says.

While Palm is losing ground in the smartphone market, Research In Motion's profit more than doubled, according the companies' quarterly earnings published this week. The differing results paint a clear picture of what mobile users are demanding and what doesn't work for them as much anymore.

In the second quarter of fiscal year 2008, ended Nov. 30, Palm reported a quarterly loss of $9.63 million, compared with a $12.8 million profit a year earlier. The company's revenue was also down 11%, and in the early afternoon on Friday, Palm's stock fluctuated.

In the second quarter, Palm finalized a $325 million recapitalization transaction with private-equity firm Elevation Partners, began supporting Microsoft Office Communications Server 2007 on all Palm Treo smartphones running Windows Mobile, and introduced several smartphones, including the Palm Centro with Sprint.

The company hopes that the Palm Centro and the introduction of more Windows Mobile-based smartphones will be its ticket to recovery.

"We are pleased with the early success of the Palm Centro and intend to deliver more Windows Mobile and Palm-based products throughout the next year," said Ed Colligan, Palm's president and CEO, in a statement.

But industry experts aren't so optimistic, citing Palm's lack of innovation, an outdated mobile operating system, and a never-ending Linux initiative as the top reasons mobile professionals are likely to choose smartphones from other makers.

Palm continues to make smartphones based on the Palm OS, like the new Centro, but what it really needs is to evolve with the times. One way to do that is to join Google in its Android initiative and consider using the future mobile platform for its smartphones.

Palm is pouring a lot of hope into its Windows Mobile smartphones, but they aren't differentiated in a brutally competitive market with Windows Mobile products already available from HTC, Samsung, and Motorola, said Avi Greengart, an analyst at Current Analysis, in an e-mail.

BlackBerry maker RIM also reported earnings this week, which doubled in the third quarter of fiscal year 2008, ended Dec. 1. RIM's revenue for the quarter was $1.67 billion, up 22% from $1.37 billion in the previous quarter, and up 100% from $835.1 million in the same quarter of last year. RIM's stock was up 12% on Friday afternoon.

In the third quarter, about 80% of RIM's revenue came from devices, 14% from services, and 4% from software. The company added 1.65 million BlackBerry subscribers, bringing the total subscriber base to 12 million. Additionally, it shipped more than 3.9 million devices.

Co-CEO Jim Balsillie attributed RIM's growth to strong adoption of BlackBerry smartphones and related products in different market segments, including large enterprises, small and medium-sized businesses, and consumers.

"We are pleased to see continuing growth amongst business and government users, with the BlackBerry platform being deployed for a widening range of applications, and we are also pleased with the excellent consumer sales results achieved so far in the holiday buying season," Balsillie said in a statement.

BlackBerrys ranked the highest in overall customer satisfaction among business smartphone users, according to a study released in October by J.D. Power and Associates. Business users were particularly satisfied with the BlackBerry operating system, including attributes like the ability to move between applications quickly and the fast speed of sending and receiving e-mails.

Besides improving existing BlackBerry products, RIM made a major push into the consumer market, continuing to roll out its BlackBerry Pearl and Curve product lines. The company also introduced a dual-mode BlackBerry with both Wi-Fi and cellular capabilities, and aggressively began pursuing potential customers outside the United States.

"RIM is blowing the doors off with 100% year-over-year growth. It redesigned its products starting in 2006 to be more fashionable and consumer friendly -- enterprise users are consumers, too -- and is reaping the rewards. Palm is getting squeezed by RIM for enterprise users and by Apple for entertainment-oriented smartphone buyers," said analyst Greengart.

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