Palm's European Vacation

When is good news terrible? When Palm (Nasdaq: PALM  ) is involved, it seems.

Weeks after telling analysts that it would not upgrade its Treo 650 smartphone to comply with European regulations for controlling pollution from electronic devices, the company struck a deal to sell a next-generation version of the Treo to European customers through Britain's VodafoneGroup (NYSE: VOD  ) before the end of the year.

Investors greeted the news with the enthusiasm reserved for a wet dog trampling on new carpet. I'm hardly surprised. According to press reports, overseas sales of the 650 were picking up just before it was pulled from the shelves, thanks in no small part to promotions with telco providers Orange and O2. Now, rivals Motorola (NYSE: MOT  ) , with its new Q smartphone, and Nokia (NYSE: NOK  ) , with its E61, will have months to steal away momentum while Palm readies its latest device.

I find it hard to forgive Palm, given that the pollution regulations that forced the 650 from shelves have been in the works since the 1990s. Commonly known as RoHS, the law requires that electronic devices take thorough measures to reduce toxicity. The law has teeth; in 2001, Sony (NYSE: SNE  ) saw shipments of its original PlayStation game console seized by Dutch customs agents. Did Palm not know it could face a similar fate with the 650? Or did management just choose to ignore the potential consequences?

Frankly, I wonder whether the partnership with Motley Fool Inside Value pick Vodafone is too little, too late. I don't doubt that Palm will produce a great product; the plan calls for a Windows-enabled Treo that will take advantage of Vodafone's high-speed third generation (3G) mobile network. But big, well-financed competitors are earning customers right now. Don't be surprised if those customers refuse to switch to the new Treo when Palm's European vacation finally ends.

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Palm is aMotley Fool Stock Advisorselection. Ask for us anall-access passand you'll get a backstage look at all of the stocks that are helping David and Tom Gardner outperform the S&P 500 by more than 36% as of this writing. It'sfree for 30 days.

Fool contributorTim Beyerssays he'll use his Treo 600 till it breaks. Tim owns shares of Nokia. You can find out which other stocks he owns by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.

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