Palm's Supply Pain

Several solution providers said Palm's color m515 handheld product, first released in March, has been on backorder at major distributors, leaving them unable to fill orders.

The disclosure comes on the heels of a May 30 analyst conference call, during which Palm executives reduced earnings expectations, citing slow sales of their mobile devices.

One solution provider, who requested anonymity, said he believes at least some of Palm's financial woes are a result of supply constraints, since the reseller channel has been unable to receive products from their distributors.

Other solution providers complained that Palm typically ships units to retail first, sometimes leaving VARs working on integrated mobile solutions empty-handed.

Danny Hamady, president and CEO of Momentum Microsystems, a Fremont, Calif.-based solution provider, said Palm's favoritism toward volume players is costing him business. "If we can't support our customers in a timely manner, the customer goes and finds the product online," he said.

Elio Levy, senior vice of marketing at distributor Tech Data, said Palm is addressing issues with supply and quality.

"By the end of the month, we expect to fix the problem," Levy said. "We received some [shipments that had a few DOAs, but [Palm has fixed the quality control. The m515 is hot, so we expect a lot of product to go through distribution."

A Palm spokeswoman said the m515 is in short supply both in the value-added and retail channels. She declined to be specific.

Palm's traditional channel is still retail, but solution providers say the company has been working lately to assemble compelling solutions aimed at the enterprise buyer. Solution providers with significant volume business also pointed out that they can often negotiate special rates directly with Palm.

Market-share leader Palm lost a small amount of share to competitors in the first quarter and is likely to lose more when second-quarter numbers are released, said Alex Slawsby, an analyst at IDC. This is particularly true overseas, where Hewlett-Packard's iPaq has replaced Handspring as Palm's

second-largest competitor, Slawsby said.

Analysts warn that Palm must manage supply and product transitions carefully to remain the leader.

Palm executives said work on its next-generation operating system, Palm OS 5, is on schedule. Palm's software division is expected to announce this week that the OS is in gold master, although hardware using the new OS isn't expected until fall. Devices that use the OS 5 will tap a more powerful ARM processor, something some solution providers are anxiously awaiting.

"The new devices should enable better enterprise applications on the platform," said Anthony Meadow, president of Bear River Associates, an Oakland, Calif.-based mobile solution provider.

SCOTT CAMPBELL contributed to this story.