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Tickers in this Article: AAPL, PALM, T, MOT, NOK
Sometime in June 2007, Apple (Nasdaq: AAPL) will begin selling its much anticipated iPhone. Many people and analysts expect the iPhone to dramatically change mobile computing. This raises the question, what will happen to all those other cell phone providers, especially Palm (Nasdaq: PALM)?

The iPhone: Game Changer
First, let's take a quick look at the iPhone, the most anticipated handset in cell-phone history. Many analysts consider the iPhone to be a "game changer" in the handheld phone arena. The phone's form factor and user interface are unique and set the bar very high for competing devices.

So far, we only get to see what Apple displays on its web site, and customers will not be able to see the phone until it is released for sale, now rumored to be June 20, 2007.

Basically the phone has iPod features for music and video; a handheld-internet device for email, web browsing, maps and search; as well as a cell phone with a two mega-pixel camera.

It also includes a number of well-thought-out features such as the sensors that recognize when you rotate the device from portrait to landscape, automatically changing the aspect ratio to fit the changed display. Another sensor detects when you lift the phone to your ear and immediately turns off the display to save battery power and inadvertent touches. These and the other features are very typical of Apple's emphasis on design and usability.

The phone is so popular that some AT&T (NYSE: T) wireless stores have lists of people who want the phone when it comes out. These people want to be the first to have one and they are worried that the initial demand will overwhelm the available supply of phones. AT&T appears to be accelerating its rebranding efforts to change Cingular to AT&T, this is so the AT&T brand will receive the positive press from the roll-out of the iPhone. With a selling price of $499 for the four-gigabyte model and $599 for the eight-gigabyte model, Apple and AT&T are establishing an important price point. The iPhone is creating a high level of excitement that puts fear in the minds of the other cell phone providers. (To learn more, see Taking Global Macro Trends To The Bank.)

Believe it or not, iPhone could Help Palm
So, will the iPhone put further pressure on the already depressed stock price of Palm or can Palm hold its own? Let's look at a few factors that might help us make that determination.

Top-of-the-line Palm Smart phones start at $299; however, they only include 128 megabytes of storage while the iPhone has four gigabytes. The significantly higher storage is very useful to handle a large library of music and videos. You can add two gigabytes of storage on a SD card for $79 to the Palm phones bringing the price to $378, but this is still less than the iPhone. The iPhone will appeal to individuals willing to pay the price for a new hot device who need to have the latest technology. However, some people may find the high cost too much for this type of device and elect to buy something that has similar capabilities but costs less. In these instances, Palm may offer an attractive alternative. It's plausible that the iPhone could actually help Palm sales grow slightly.

In addition, Palm's phones have a substantial number of industry-specific applications that professionals find useful in their daily business lives. Healthcare professionals use Palm applications in clinical trials, to check drug interactions, immediate access to prescription information and for patient management. Attorneys use Palm applications to track and post billable time with clients with a single click, and financial professionals use Palm applications to reference critical news items and market information. When these people realize that the iPhone does not have this capability (at least, for now), they may decide to select a Palm phone instead. This is another instance where Palm may benefit from the interest in iPhone.

Next, the iPhone may encounter resistance in the corporate markets where it has yet to prove itself. While many corporations allow their people to select from a variety of phones, they also require these devices to use a standard set of applications. This will keep the iPhone from being part of these companies' "approved list of phones".

Given these factors, it seems that the iPhone may benefit Palm for at least the short-term. Of course the iPhone will generate substantial buzz in the market. To many this excitement implies that the sales of all other phones will suffer. However, if you look carefully at the market for the iPhone, I believe it does not directly compete with the Smart phones from Palm. However, it may cause demand for phones from Motorola (NYSE: MOT), Nokia (NYSE: NOK) and Samsung to suffer.


New Technology Could Boost Palm
Jeff Hawkins, the founder of Palm, is working on new and interesting technology for individual use. Based on Hawkins' book "On Intelligence" (2004), his new company Numenta is developing an innovative technology based on the human neocortex. The applications of this technology are broad and can possibly be applied to solve problems in computer vision, artificial intelligence, robotics and machine learning. The company is creating a scalable software toolkit, called the Numenta Platform for Intelligent Computing (NuPIC) that will allow developers and partners to configure and adapt systems to particular problems.

Of further interest, Donna Dubinsky, the former CEO of Palm and Handspring, is the new CEO of Numenta. In addition Jeff Hawkins is still involved with Palm. It's possible that some of this technology could be used by Palm to enhance its capabilities in new and different ways. Keep in mind that I am just speculating - nothing has been officially announced. However, it does make for an interesting thought as handheld computing technology continues to evolve.

The Bottom Line
Palm's stock has been under pressure since it reported lower earnings. There are rumors that Motorola and Nokia might buy Palm, however, so far nothing concrete has happened. For now Palm must depend on its current portfolio of products and lower price to compete with the iPhone. While the iPhone is likely to achieve significant success, Palm should be able to maintain its current position in the market. Furthermore, should potential opportunities with Numenta materialize, it could give Palm an advantage in the rapidly growing handheld market.

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