Palm: Who Needs iTunes? How About PalmTunes!

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Includes: AAPL, PALM
by: Eric Savitz

OK, so there is no such thing as PalmTunes.

But maybe there should be.

As you no doubt know by now, Apple (NASDAQ:AAPL) Wednesday provided a new version of its iTunes software with a new “feature,” which is that it blocks syncing of third-party devices, in particular the Palm (PALM) Pre. As Kaufman Bros. analyst Shaw Wu points out in a research note Thursday morning, “the last thing Apple needs is someone having access to its hard-earned technology for free.”

Stating the obvious, Wu notes that this development is a “modest negative for PALM.” No kidding: on the Web, PALM still touts iTunes compatibility on its list of Pre features, although there is a footnote that says in very tiny print: “Compatible with iTunes v8.2. Compatibility with future versions not guaranteed.” The current version is 8.2.1.

Wu suggests that Palm at some point “will need to provide some type of content management and syncing software with PCs and Macs” and to play in the smart phone application space. He says that Palm may prefer to have a cloud-based service with its carriers, but that hardly seems a good substitute for locally stored music. Try going on a long walk while listening to Pandora some time: in an area without reliable connectivity - like the Stanford Dish, where I recently tried it - you’ll find the experience irritating at best. Music simply is not the kind of thing you really want to be streaming over 3G; as Wu notes, the technology is not efficient at delivering content and has poor battery life. What Pre users need, in other words, is PalmTunes, and the PalmTunes music stotre. But it seems unlikely that will happen any time soon.

(Actually it turns out that there is, or at least there used to be, an app called PalmTunes to move songs from iTunes to Palm OS devices; that is not going to cut it here, though.)

Wu maintains his Hold rating and $16 price target on PALM shares.

PALM is down 22 cents, or 1.5%, to $14.70.

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