Palm Pre stands to shake up smartphone status quo

EL SEGUNDO, USA: Palm’s new Pre smartphone holds strong potential for robust sales growth, and may have a major influence on other platforms as well as the technology supply chain, according to iSuppli Corp.

Palm Pre shipments could amount to 1.1 million units in 2009. However, if Palm quickly introduces a new Pre that supports the 3G GSM standard, sales could rise to 1.3 million during the year. Furthermore, if Palm opens up the licensing of its webOS operating system used in the Pre, the software could have a wider influence beyond the company’s own products.

“Palm’s webOS appears to be superior to the Mac OS X used in the iPhone in the crucial area of multitasking capabilities,” said Tina Teng, senior analyst, wireless communications, for iSuppli. “This key point of differentiation, combined with the product’s multi-touch display, could be enough for Palm to carve out a significant share of the smartphone market.”

Another key allure of webOS is its use of widgets for accessing data and applications like the iPhone, rather than the folders used in Microsoft’s Windows OS. The consensus among most users appears to be that widgets provide a more intuitive interface than folders.

Because of this, there may be strong demand for webOS from other smartphone makers.

“If Palm decides to license webOS to other companies, it could follow in the footsteps of Google’s Android operating system, which is expected to expand its share of global smartphone operating systems to grow by nearly a factor of 12 from 2008 to 2010 according to iSuppli’s Design Forecast Tool (DFT) for Mobile Handsets,” Teng added.

This could lay the foundation for webOS to challenge Apple’s Mac OS X for leadership in the highly intuitive smart-phone operating system market.

Minding the store
Palm could further boost the prospects of webOS if the company opens an application store that sells programs that work with the operating system, similar to Apple’s App Store.

“An application store would make Palm a more complete solution provider to its end customers, allowing it to provide not only a hardware platform and operating system but also the programs essential to take advantage of the capabilities of a smart phone,” Teng said.

Teng noted that industry rumors have circulated since the Consumer Electronics Show (CES) in January that Palm will offer an online applications catalog. With the arrival of software allowing developers to produce programs that can be compiled to work on multiple mobile operating systems, Palm’s store likely will grow rapidly to sport a large number of applications.

Battle of applications processors
The potential long-term success of the Pre promises to benefit Palm’s applications-processor semiconductor supplier, Texas Instruments Inc. (TI).

While TI remained the leading supplier of standalone media/application/graphic processing chips for mobile handsets in 2008, No.-2 Samsung Electronics Co Ltd. is closing in on the lead, according to iSuppli’s Wireless Competitive Landscaping Tool (CLT). Samsung’s share of global market revenue rose to 16.4 percent in 2008, up from 10 percent in 2007. In contrast, TI’s share declined to 16.8 percent in 2008, down from 23 percent in 2007.

“Owing to rising shipments of the iPhone, which uses Samsung’s media processing silicon, the company is closing the gap,” said Francis Sideco, senior analyst, wireless communications, for iSuppli. “Pre’s success could help TI regain some of that share as Pre sales will help boost TI’s revenue for its OMAP line. It also will validate TI’s OMAP approach by demonstrating the need for powerful standalone applications processors in high-end smartphone devices.”

The table presents iSuppli’s market share estimates of global standalone mobile phone media processors.Source: iSuppli, June 2009

Display shortage?
The Pre likely makes use of a Low-Temperature Polysilicon (LTPS) LCD display, which offers superior picture quality compared to regular TFT-LCD panels used in most mobile phones.

This could put constraints on availability of LTPS LCD supplies, which is a popular display choice in the growing smart phone marker segment.

“If the Pre is successful and large volumes are shipped in the coming years, LTPS displays could go into shortage because the supply is limited to a few suppliers that operate smaller generation fabs capable of producing them,” said Vinita Jakhanwal, principal analyst, small/medium displays, for iSuppli.

In the palm of your hand
An iSuppli preliminary cost analysis of the Palm Pre released in late April revealed a total projected Bill-of-Materials (BOM) and manufacturing cost of approximately $170 for the product.

The estimated BOM consists of a hardware cost of $138, including the battery, nearly $10 for manufacturing and basic test costs, and a software and licensing cost of $23.

iSuppli produced this estimate of the Pre’s hardware and manufacturing costs based on second-quarter component pricing and assembly pricing from the company’s Mobile Handset Cost Model. An iSuppli cross-functional team also participated in developing the virtual teardown, including experts in memory, displays, baseband, component pricing, mobile handsets and wireless connectivity.

A full, physical teardown of the Palm Pre will be released by iSuppli early next week.