High stakes pre-Pre announcement

Dow Jones and the WSJ ran interesting articles on the high stakes Palm faces with its planned announcement of the Pre sometime in the next four months. The news hook is that Palm’s current investors added another $100m to their prior $325m investment nearly two years ago.

Here’s what the WSJ said:

The product launch is likely to be costly. Consulting firm Altman Vilandrie & Co. estimates Palm will have to spend $50 million to $75 million to get enough phones ready and as much as $50 million for marketing, depending on how aggressive Palm wants to be and how much support it receives from its carrier partner Sprint Nextel Corp.

The DJ report was even more stark:

Palm Inc.'s much ballyhooed smartphone, the Pre, may end up being a costly affair for the embattled company.

With an aging product portfolio and nothing else in the pipeline, Palm is betting it all on the success of the Pre. A lot of capital goes into production and marketing to ensure a successful launch, which some peg as high as $100 million. As a result, Monday's announced financing move may not be its last.

"Palm's ability to recover from a shortfall in launch volume could be problematic," said Daniel Hays, a consultant at PRTM. "Having extra working capital to build up inventory seems prudent."

The DJ report predicts that Sprint will pay most of the marketing budget, but quotes analysts as saying Palm needs to also commit its own money to assure success:

Industry observers point to the lukewarm launch of Samsung Electronics Co. Ltd.'s Instinct by Sprint. The marketing campaign wasn't strong, and aside from an initial pop, the phone failed to live up to its billing as the "next iPhone."

The Pre is do or die for Palm: if the product fails, it’s the end of Palm’s 15 year existence as an independent company. But Sprint also badly needs a hit smartphone, since its competitors have been enjoying the hot phones the past two years.