Embattled Palm will Close All But One Retail Store (NewsFactor)

Caught in a fierce competitive market populated by BlackBerries, iPhones and other innovative devices, Palm announced this weekend that it will close most of its retail stores.

The mobile-device maker said it will shutter seven of its eight retail stores in February, and will also shut down 26 Airport Wireless stores before the end of its fiscal third quarter. The Airport Wireless outlets operate as "stores within stores." In addition to its online store, Palm will still sell through stores run by telecommunications carriers.

Only the Sunnyvale, Calif., store will stay open. The announcement was made Saturday via e-mail.

PROBLEMS ON SEVERAL FRONTS

At the end of Palms last completed quarter, Palm CEO and President Ed Colligan said the company was "instilling operational rigor throughout the organization," and this latest move is part of that belt-tightening.

Palm has been facing problems on several fronts. Late last year, it said sales will fall to about $310 million to $320 million for this quarter, which would be the second quarter in a row to post a drop. In the last fiscal year, it showed a loss of nearly $10 million. In addition, the company has said a parts shortage could impact its most recent Treo smartphone.

It also sent a legal notice recently to customers who bought a Treo 600 or 650, notifying them that they may be eligible for a refund resulting from a class-action suit. The 2005 litigation contended that the phones had unacceptable failure rates from defects, and Palm settled, although the company did not admit any wrongdoing. Some observers are suggesting that the closings of the retail stores stems from the companys financial obligations for the settlement.

But the biggest challenge facing Palm is to get back in the saddle. At one time it was a leading innovator in the smartphone and personal digital assistant market, but its Palm operating system has not had a major upgrade in years and its product line has lagged. A new operating system based on open-source Linux is expected by the end of this year.

VERY STRONG BRAND

Avi Greengart, an analyst with industry research firm Current Analysis, said the latest moves sound like Palm is battening down the hatches. But, he added, hed like "to be optimistic about the companys prospects overall," given their "very strong brand and a proud history of innovation."

They were "really the first to offer a one-handed user experience with a QWERTY keyboard," he pointed out, and even now, their calendar and contact applications "are among the most straightforward."

But Greengart noted that, except for the Centra, most of Palms products are outdated, and its now a "race against time for them to get their Linux platform out before their product line is completely trounced."