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Verizon rumored to embrace Palm in 2010 to combat iPhone


Looking beyond its new lineup of Android-based mobile phones, Verizon is also expected to add Palm's webOS in 2010 to fight off AT&T subscriber gains based on the strength of the iPhone.

In a note to investors released Tuesday, Shaw Wu, analyst with Kaufman Bros., upgraded his rating on Palm stock from neutral to buy. He based the change on a belief that Verizon will carry webOS-based phones from Palm in the first half of 2010.

"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 said.

His prediction is based on three reasons: Android phone sales have been initially disappointing, Sprint's exclusivity agreement with Palm is believed to end in 2009, and Verizon has shown "high interest" in webOS, including public comments from CEO Lowell McAdam.

Wu said he does not believe that Android will squeeze Palm out of the marketplace, and that the handset maker has a number of distinct advantages, most notably its multi-touch capabilities and vertical integration.

Kaufman Bros. has issued a buy rating for PALM stock, with a price target of $16.

Last quarter, AT&T continued to close the gap with Verizon in terms of total subscribers. As of October, Verizon had an estimated 89 million subscribers, compared with AT&T's 81.6 million. But in the third quarter of 2009, AT&T added 2 million customers while Verizon added 1.2 million.

AT&T's 2 million customer increase represented the company's highest third-quarter gain in history. Of those customers, roughly 1.28 million were said to be iPhone users. To put the total in perspective, more new customers came to AT&T for the iPhone than the total number of new subscribers gained by Verizon with all handsets during the September quarter.

To fend off AT&T's gains, Verizon has fired back as of late, pushing the well-reviewed Motorola Droid with an aggressive advertising campaign that specifically targeted the iPhone.

In October, Verizon and Google announced a partnership to deliver a number of Android-powered phones to the nation's largest wireless provider. The two companies have said they will co-develop handsets and create new applications.

Additional reports have suggested that Verizon and Apple are secretly working toward the launch of a CDMA-compatible phone in the second half of 2010. Apple's exclusivity agreement with AT&T is believed to expire next year.