Palm Treo 700w Launches: Sell-side and Reviewer Responses (PALM, VZ, RIMM)

Palm released its Treo 700w smartphone today -- a bit earlier than most were expecting. The phone will run on Verizon's (VZ) EV-DO network, with data rates of 400-700 kbps -- up to 10 times faster than the Treo 650 enjoyed. Everyone is expecting the 700w to be a huge product for Palm this year, and the move to Windows OS should open up a big enterprise market previously owned by Research In Motion's (RIMM) BlackBerry. But three cautious statements on the Treo 700w launch just came our way that PALM stock holders (or those considering buying PALM on these prospects) should certainly be aware of:

1) In a note to clients, Lehman Brothers analysts Jeff Kvaal and Tim Luke questioned if the 700w's limited availability will enable Palm to reach its February guidance:

Palm's guidance suggests approximately 560,000 units in the February quarter. As we do not believe channel inventories have much room to rise, we believe Palm must expect sell through to match sell in during February. This would imply approximately 30% sell through growth in the February quarter. Given that this is a seasonally slower quarter for handset demand, the arrival of the 700w is likely to dampen 650 demand further, and that RIM, Motorola, and Nokia either have or will shortly launch new products, Palm appears to be placing a significant amount of weight on its 700w launch. The company has indicated for some months it has the orders to back this growth up. Given anecdotal checks with Verizon, we do not doubt the strength of 700w demand. We are not certain, however, the 700w strength will come in time to bolster the February quarter.

Applying a normal seasonal 15% downtick in handset sales in the first quarter to Treo sell through yields 370,000 units. Variables for a 15% assumption include 1) Palm may benefit from the fact that its quarter includes the month of December but may suffer from 2) the aging of the 650. Nevertheless, should 650 sell through decline to 370,000 units, we believe Palm would need to sell approximately 180,000 700w to reach its guidance. Given that 700w distribution may not reach full strength until the sixth or seventh week of the quarter, this math is aggressive in our view.

2) Influential tech reviewer David Pogue in today's New York Times says the Microsoft-Palm convergence on this device leaves much to be desired in the all-important usability department:

The Treo 700W is a Frankensteinian mishmash. Some of its features are so inspired and well executed, you can't help grinning, while others are so clumsy, you smack your forehead... In the first category, you'll find a cluttered but fantastically useful new Today screen, your starting point and home base...

[but] the Start menu has room to list only seven programs. For access to anything else, you must open the Programs folder. But even here, only nine icons fit on each screen, and no list view is available. So you have to do a lot of scrolling... Sooner or later, you'll run into the "Program Memory Low" error message, requiring you to shut down programs manually in a special list box... considering that Palm's designers once worshipped at the altar of interface excellence, it's a shame that Microsoft's convoluted software has produced such an awkward marriage with the hardware. Longtime Treo fans, in particular, will be absolutely baffled by the new software layout.

3) Walt Mossberg of the Wall St. Journal (sub. req.) concurs with Pogue:

Despite some nice new features, the Windows Mobile software is still inferior to the Palm software for one-handed use on the go. Its crucial email and phone functions are also weaker. And there's a serious bug in its email software that affects individuals, though not corporate users. So the Treo 700w is neither as easy to use nor as powerful as the Treo 650. In addition, the screen on the 700w offers significantly lower resolution than the screen on the 650, and the new model costs twice as much -- $400 versus $200...

Lots of tasks on the Treo 700w require extra steps. On the 650, one click of a button takes you to email. On the 700w, two button presses are necessary. On the 650, the leading email programs allow you to delete a message by pressing one key. On the 700w, you have to press a key, view a menu and then press a second key. And the email program lacks many of the advanced features of VersaMail or SnapperMail on the Palm-based Treo. For instance, there's no simple way to delete -- or to mark as read -- large groups of messages... The Treo 700w will appeal to some Windows Mobile fans, and to some corporate IT staffs. But for everyone else, I advise sticking with the Palm-based Treos.

PALM 1-yr chart: