Palm Inc.’s (PALM) new smartphone, Pixi — a lighter and cheaper version of the Pre — can now be bought for just $24.99.

Both Wal-Mart (WMT) stores and Amazon.com Inc. (AMZN) have slashed the price of the new Pixi phone by 75% from the original $100 after the Pixi went on sale last week at Sprint Nextel Corp. (S). Amazon has also cut the price of Palm’s Pre to $79 from $99.

The price cut may attract consumers in the coming holiday season, however we remain unsure about the future of Palm. Moreover such steep price cuts confirm our view that both the Pre and the Pixi are just not selling in a market crowded by devices such as Apple’s (AAPL) iPhone, Motorola’s (MOT) Droid and Research In Motion’s (RIMM) BlackBerry.

Palm’s Pixi and Pre are still available via Sprint for $99.99 and $149.99, respectively. Both the phones come with a two-year contract with instant rebate and a mail-in rebate.

Palm’s Pixi has features like 8 gigabytes of built-in memory, an exposed QWERTY keyboard and personalization features, but do not support Wi-Fi capabilities. Pixi has a 2-megapixel camera and a slower processor with a smaller screen.

Thus the performance of Pixi is still not clear given its slower processor and lack of Wi-Fi. Pixi runs on Palm’s WebOS but relies on Sprint’s 3G network for connectivity.

We believe Palm’s competitive position has been permanently damaged by its antiquated offerings and the company is still selling only a small fraction of Pre phones to smartphone users.

We maintain our Underperform rating on PALM shares.
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