Kara began Monday with some of the hard facts from the pending AOL-TimeWarner (TWX) split. Stock issued for the post-spinoff AOL places the company’s total implied value at around $3 billion. Also on the list of stuff from 1994 being jettisoned from tech companies is the original instant messenger, ICQ. Kara reported that AOL seeks to shed the brand in an effort to keep the larger ship afloat. Over at Yahoo (YHOO), Kara opened the lid on CEO Carol Bartz’s shifting of top execs. In Silicon Valley’s house of cards, everyone watches out for a shuffle.

Over at Digital Daily, John brought some hard numbers to the stresses being felt by AT&T’s (T) 3G network thanks to a certain fruit-flavored smartphone. It seems that the iPhone is largely responsible for the 2,000 percent increase in data traffic in the San Francisco Bay Area compared with a year ago. (Weekend Update doesn’t claim sole responsibility.) Keeping up with layoff news these days is almost a full-time job. It’s a good thing Paczkowski is on the case. This week, Sony-Ericsson let roughly 2,000 employees go. The firm plans to shutter whole offices in both the United States and abroad. John finished strong with a whole slew of posts about the forthcoming Google (GOOG) Chrome OS, which was released in a developer’s beta this week. Next year, the good kids may be getting their stockings filled with Chrome rather than Apples.

You can never tell what MediaMemo will have up its sleeve in a given week, and this one was no exception. Peter came in early with reports that Wired magazine is another publication betting on a certain tablet. Wired may pave the way for other Condé Nast publication e-editions. From the department of “Hey, it looks like it worked for them,” a couple of music giants will release a Hulu-like service for music videos. No word yet on whether the Internet killed the video star. Peter closed it out this week with the fizzle that will be Oprah’s broadcast career. The talk-show-host-turned-deity will end her broadcast career in 2011, but may not be sorely missed by CBS, according to MediaMemo. Everyone is pretty torn up about Gail leaving though.

Personal Technology went a little off the reservation this week and covered an intriguing specialty gadget with a very specific target audience. The reading aid for the visually impaired is unusual for many reasons, not the least of which is that its branded Intel (INTC) both on the inside and outside. The reader uses a downward-facing camera to read text and translate it directly to speech. Walt was pleased with the device on the whole, though he encountered some bugs and a somewhat steep learning curve that may be a function of the novel nature of the product. Over at Mossberg’s Mailbox, the lead question this week was about data loss. Once the geek shudders stopped, Walt let the reader know that there are many alternatives to Apple’s (AAPL) Time Capsule drives, and the integrated Time Machine option is one useful alternative. At Mossberg Solution, Katie won a fight with a Pixi and brought us the blow-by-blow account. The cheap-and-cheerful version of the Palm (PALM) Pre features a stripped-down price. That savings came at too high a performance cost, said Katie. She praised Palms webOS, but came down on the side of spending a little more to get the Pre.

Stay tuned and check back often. Weekend Update will be back next week as long as we can make it out for the Black Friday sales with all our fingers and toes.

Staggering, considering the Pixi arrived at market just four days ago, but perhaps necessary given early and widespread complaints about the device’s slow operating speed, some unfavorable reviews and the fact that the Pre–the Pixi’s more robust elder sibling–is now selling for $99.99 and $79.99 at Wal-Mart (WMT) and Amazon (AMZN), respectively.

UPDATE:

Palm’s aren’t the only smartphones being heavily discounted as we head into the holidays. Motorola’s and HTC’s are as well. Amazon is offering the Moto’s Droid for $149.99 and Overstock is peddling the HTC Eris for $49.99.

“Now we aren’t typically the carrier that comes out and announces what we are going to be selling 12 months from now. Other carriers do that, and the media loves to speculate on what we are bringing to market. But what I will tell you is that over the next six months or so you will see devices like the Palm Pre and the cousin on our network from Palm.”

– Verizon Wireless President and CEO Lowell McAdam

For Palm, 2010 will be a year of channel expansion, with its new webOS handsets coming to more carriers. Top among them, Verizon (VZ), which has been rumored to be getting a device “like the Palm Pre” since Palm (PALM) launched it. In a research note to investors today, Kaufman Bros. analyst Shaw Wu says a Palm smartphone on Verizon is pretty much inevitable.

“Based on our checks with industry and supply chain sources, we have fairly high conviction in Verizon carrying Palm’s webOS-based smart phones sometime in 2010 (potentially as early as 1H),” Wu writes.

“The reason,” Wu explains, “is three-fold: 1) despite heavy promotion and favorable reviews, sales of Android 2.0 smart phones (MOT Droid and HTC Droid Eris) have been somewhat disappointing and below expectations; 2) strong indications point to Palm’s launch exclusive with Sprint ending in 2009; and 3) our checks show high interest in webOS from Verizon including public comments by CEO Lowell McAdam.”

Interesting, especially the comment about Droid sales. If Wu is right, the device may not prove as daunting a competitive challenge as you would think.

“It’s too early to declare game over,” Wu says. “Talking with investors, most have written off Palm as a legitimate competitor and assumed Android will be the platform of choice at Verizon and other carriers. We believe Palm still has sizable advantages with its multitouch capability and vertical integration.”

At $12.34, Palm (PALM) is up well over seven percent as I write this, a nice gain that more than offset the four percent drop the company’s shares suffered last week. Clearly, the market is expecting a lot of the Pixi, and according to some analysts, it may get it. In a note to clients Friday, RBC analysts said they “expect positive consumer reception and healthy sell-through,” for the Pixi.

But not everyone agrees with RBC’s cheery assessment. Ashok Kumar, an analyst at Northeast Securities, has a much dimmer view of Palm’s prospects in the months ahead. He says his sell-through checks show a “substantial decline” in recent Pre sales.

“As a fading brand, carriers are likely to see better returns on their promotional and advertising dollars with other vendors,” Kumar writes. “WebOS has negligible smartphone OS share, 0.2 percent per Gartner estimates, and is unlikely to attract any meaningful third-party application support. Palm has bet the farm on webOS and there is a real possibility that they may not achieve critical mass.”

Perhaps. Perhaps not. We’ll see in the months ahead.

Below, Palm’s (PALM) new Pixi ad and my favorite parody of Palm’s ad for the Pre.

“Despite increasing smartphone competition, Palm can maintain differentiation and remains well-positioned to launch its products with multiple new Tier-1 carriers in early 2010 by which time it should have a robust apps catalog,” Arya wrote. “While we expect the stock to remain volatile, the recent sell-off creates an interesting buying opportunity, in our opinion, for a company with an attractive platform, selling into a high-growth market, and at a compelling valuation.”

Interestingly, Arya notes that Palm’s webOS application ecosystem, initially something of a disappointment, is growing a bit more rapidly these days with between 50 and 100 apps being added to Palm’s App Catalog each week. He expects growth to continue with the debut of a new feature enabling customers to download apps simply by clicking on a URL. Arya believes this will dramatically improve discovery of apps and attract more attention from developers. His conclusion: With a more robust App Catalog and two attractive handsets, Palm is well-positioned to launch its webOS line with multiple new Tier-1 carriers like Verizon (VZ) in early 2010.

Earlier this week, analysts at Citigroup (C) and CL King voiced their concerns about the company in the wake of another ugly quarter from carrier partner Sprint (S). Now Standard & Poor’s is doing so as well. In a note to investors today, analyst James Moorman whacked down his price target on the company’s shares to $10 from $12 and reiterated his “Strong Sell rating.

“We believe the upcoming holiday selling season will be very competitive for handset vendors and think Palm could see competitive pressures,” he wrote. “We believe the small price difference between the Pre handset (especially when on sale at third party vendors) and the new lower-end Pixie could limit Pixie sales and confuse consumers during the launch.”
 
Indeed. As I noted here last week the $99 price Sprint has set for the Pixi is identical to the Pre’s on Amazon (AMZN). And the Pre has a faster processor, a better screen, and Wi-Fi support as well.

Not the most desirable circumstances for heading into the holiday season.

Shares in the handset maker fell some 23 percent last week amid concerns about increased competition from Google’s (GOOG) Android operating system, which is being rolled out on a number of devices at a variety of carriers, including Palm partner Sprint (S).

This morning, analysts at Citigroup (C) cut their recommendations to sell from hold on Palm (PALM) while simultaneously raising their rating on Motorola (MOT) because of its “compelling” new Android handset, Droid.

“Motorola is launching of one of the most compelling offerings at [a] time when many investors have given up on the company’s handsets,” Citigroup analyst Jim Suva wrote in a research note.

“The revolution of product and application service offerings,” Suva added, “is going to start to crack open the enterprise door and could pose a risk for BlackBerry. Major shifts in promotion support creating a promotion commotion in the months ahead favor Motorola and post a challenge for RIMM and PALM.”

Over at CL King, analyst Lawrence Harris is similarly dubious of Palm’s prospects in the months ahead. Noting that Sprint executive David Owens said last week that the carrier plans to peddle a number of new Android devices from HTC next year, Harris sees unfavorable implications for Palm.

“Historically, Sprint has been Palm’s largest customer. Indeed, in the August quarter Sprint accounted for 85 percent of Palm’s revenues,” Harris wrote in a note to investors. “In FY09 (May) Sprint represented 43 percent of total Palm sales. Sprint has a U.S. exclusive on both the Pre and the Pixi through calendar year end. The Pixi will be launched at Sprint on November 15 for $99.99. The Pixi is fairly similar to the $149.99 Pre. Verizon has stated that it will begin offering the Pre in early CY10.”

Expounding on his analysis, Harris notes that “According to a report on Mobile Today, a U.K.-based publication, initial sales of the Pre through Telefonica’s O2 unit in the U.K. have been slow. If this report is correct, than the bulk of Palm’s sales over the next few months will probably continue to be generated through Sprint.”

That Sprint will soon add some slick new Android handsets to its lineup is worrisome, then, indeed. For Palm, it seems, driving conditions on the road to recovery are looking increasingly hazardous.

In its second quarter–the first with the Pre in its lineup–Sprint (S) lost 991,000 postpaid subscribers. And in its third, reported yesterday, its lost 801,000. So subscriber loss, while unquestionably gruesome, is diminishing.

How much of this is due to Palm’s (PALM) Pre? Not that much, says CL King & Associates analyst Lawrence Harris, who believes the Pre had only a moderate impact on Sprint’s postpaid subscriber base.

“Within postpaid, the number of CDMA-only subscriber losses was about 100,000 in the September quarter, compared to the 200,000 in the June quarter,” Harris wrote in a research note to clients. “At Sprint, the Palm Pre is a CDMA-only postpaid device. The number of Sprint postpaid subscribers upgrading their handsets was slightly higher in the September quarter than in the June quarter at just over 2.0 million.”

According to Harris, “This number provides some indication of the available market for all high-end devices at Sprint. In Palm’s August quarter, 85% of the company’s sales went to Sprint. Given the absence of growth in Sprint’s CDMA postpaid category, it appears likely that most of the Palm Pre sales went to existing Sprint subscribers as opposed to winning customers from other carriers.”

That would seem to be the case. Sprint rivals AT&T (T) and Verizon Wireless (VZ) each added subscribers during the second quarter–1.4 million and 1.1 million, respectively. So if the Pre did anything for Sprint, it helped to stem CDMA postpaid losses a bit.

And that’s something, right? After all, there’s no panacea for Sprint’s affliction–well, perhaps there is, but it’s locked up in an exclusivity agreement with AT&T (T). Still, when Sprint last reported earnings, CEO Dan Hesse said the carrier expected to sign up more new customers as the Pre gained wider distribution through retail outlets like Best Buy (BBY) and RadioShack. And that doesn’t really seemed to have happened. Perhaps next quarter after Sprint launches the Pre’s not-quite-cheaper sibling, the Pixi.

UPDATE: A quick addendum. In a research note this morning, Bernstein Research analyst Craig Moffett notes that while Sprint has reduced subscriber losses a bit, the cost of doing so has been worrisomely high.

“Yes, net subscriber losses were better,” Moffet explains. “But the cost was very high. Post-paid equipment subsidies soared to $139 per subsidized subscriber in Q3 (up 39 percent from last year), as the company recovered just 36 percent of their equipment costs….Yesterday’s results illustrate why it may not be possible for Sprint to have its cake and eat it too. After all the drastic cost cutting, after all the efforts to refresh the product line, after all the price cuts and new pricing plans, Sprint was able to manage only a modest improvement. Not growth, just a slightly slower rate of decline. And that Herculean effort almost broke the bank. The huge costs of even marginally improving gross additions (and the rate of net subscriber loss) crushed margins.”

“As we’ve said before, newer versions of Apple’s iTunes software may no longer provide syncing functionality with unsupported digital media players.”

When Apple said it does not support iTunes integration with third-party digital media players, it meant it.

With iTunes 9.0.2, Apple (AAPL) has once again disabled the Palm Pre’s ability to synch with the media software, a feature re-enabled by Palm (PALM) earlier this month after Apple disabled it in response to Palm’s re-enabling of it following its first disabling by Apple.  

And if you think that round-and-round sounds asinine, just wait until Palm releases webOS 1.2.2.

Consensus seems to be that the Droid is the device that will get Motorola back into the game. Indeed, Technology Business Research’s Ken Hyers says the Droid is likely a “serious challenger to the iPhone.”

Over at RBC Capital Markets, Mark Sue says good things as well. “The Droids are coming and Motorola will be an important part of Verizon’s push for smartphone differentiation,” he wrote in a note to clients Wednesday. “In addition to compelling products, Motorola seems to have gotten back into the good graces of the North American carrier federation, which should aggressively push the new devices.”

Of course, these endorsements don’t necessarily mean that Motorola is poised to return to its past glory. And they certainly don’t guarantee the Christmas turnaround the company is clearly hoping for. After all, the smart-phone market is far more competitive now than it was when Motorola last dominated it back in 2004.

Said Morningstar analyst Joseph Beaulieu: “[I’m not sure the Droid] will be good enough to cut through the noise that you’re getting from Apple iPhone, HTC’s Hero, Research In Motion’s BlackBerry and even Palm’s Pre and upcoming Pixi.”

Not the most aggressive price considering that Amazon (AMZN) is currently offering the Pre, the Pixi’s elder, more robust sibling, for $99 (see image below; click to enlarge) with a two-year contract as well. Remember, the Pixi has a slower processor and a smaller screen than the Pre. And it doesn’t support Wi-Fi. Has some neat back covers though!

Worse, Pixi requires $200 to get out the door, and statistically speaking, there will be quite a few people who will fail to cash in that second $100 rebate. As I noted back when the Pre launched with a similar rebate program, redemption rates for offers like these typically run around 58 percent, thanks to customers who either find the process too cumbersome or forget about it entirely.

This can end up being quite lucrative for the issuing company. Consider this: In 2004, TiVo (TIVO) promised customers a $100 mail-in rebate within six to eight weeks of the purchase of a new DVR. About 50,000 of the 104,000 eligible for that offer failed to take advantage of it. That saved TiVo about $5 million.

PREVIOUSLY:

• Palm Pre: $199 After a $100 Rebate We Hope You Lose

According to the CTIA, there are more than 246 million wireless data-capable devices at large in the U.S. today. Of these, 40 million are smart phones or PDAs, and more than 10 million are laptops. Little wonder that wireless data service revenue rose 31 percent to more than $19.4 billion in the first six months of 2009.

Revenue will no doubt continue that trend in the months ahead as wireless devices become more ubiquitous. Wireless carriers, then, would be wise to put some of their windfall toward building out their networks to cope with future demand lest they end up the butt of a joke in a rival’s advertisement.

Consider these remarks from Federal Communications Commission Chairman Julius Genachowski, spoken Wednesday at the CTIA wireless industry convention in San Diego: “We are fast entering a world where mass-market mobile devices consume thousands of megabytes each month. So we must ask: what happens when every mobile user has an iPhone, a Palm Pre, a BlackBerry Tour, or whatever the next device is? What happens when we quadruple the number of subscribers with mobile broadband on their laptops or netbooks? The short answer: We will need a lot more spectrum. The biggest threat to the future of mobile in America is the looming spectrum crisis.”

From Palm’s webOS 1.2.1 version information:

Feature changes to existing applications
System

• Resolves an issue preventing media sync from working with latest version of iTunes (9.0.1).
• Media sync now synchronizes photo albums, maintaining the album structure in the Photos app.

How did Palm (PALM) do this? By once again making the Pre masquerade as an Apple (AAPL) device. Plug your Pre into your computer and set it to Media Sync and it identifies itself like this:

USB Product ID: 0×1209
USB Vendor ID: 0×05ac (Apple, Inc)
Manufacturer: Apple Inc.

A brazen move, considering the USB-IF specifically warned Palm against doing exactly this in its Sept. 22 letter to the company:

I attach for your information the USB-IF’s adopted and published policy regarding Vendor Identification Numbers (VIDs). Under the Policy, Palm may only use the single Vendor ID issued to Palm for Palm’s usage. Usage of any other company’s Vendor ID is specifically precluded. Palm’s expressed intent to use Apple’s VID appears to violate the attached policy.

Please clarify Palm’s intent and respond to this potential violation within seven days.

Now that Palm has “clarified its intent” with regard to this potential violation, I wonder how Apple and the USB-IF will respond. Do they have any recourse? The USB-IF could revoke Palm’s membership in the group, but what would that accomplish? Very little, as far as I can tell. Certainly, it wouldn’t prevent Palm from continuing to update its devices to synch with iTunes.

Reached for comment, Palm declined to offer one. Apple and the USB-IF have not yet responded to my requests. If and when they do, I’ll update here.

UPDATE: Looks like this cat and mouse game is going to go another round. This just in from Apple: “As we’ve said before, newer versions of Apple’s iTunes software may no longer provide syncing functionality with unsupported digital media players.” Presumably, iTunes 9.0.2 will disable Palm’s latest fix.