June 7 (Bloomberg) -- Palm Inc.’s Pre sold out within hours at some stores after Sprint Nextel Corp. released the touch- screen phone yesterday, as pent up demand from months of waiting met with limited supplies.

Some Best Buy stores reported having as few as three phones on hand. Jennifer Fritzsche, an analyst at Wachovia Securities Inc., said Chicago-area Sprint stores received 30 to 50 of the devices, and some locations expected new shipments by June 10.

“I’m not finding the Pres. They’ve sold out everywhere,” said Fritzsche, who rates Sprint shares “market perform” and doesn’t own any. “It can actually help them because they’re creating more of a buzz.”

Customers have been waiting since January for the Pre, touted as the biggest competitor yet to Apple Inc.’s iPhone. The stores have started waiting lists for customers who can’t get the device immediately, said Karen Paletta, manager for Sprint’s Northeast stores. Palm and Sprint, reeling from customer losses and sales declines, have seen shares surge this year in anticipation of the smart phone’s debut.

The Pre, selling for $199 with a two-year contract and mail-in rebate, has an operating system that combines calendars, contacts and messages from different accounts. It synchronizes with Apple’s iTunes music store and has a screen that lets users zoom in and flip through applications without closing them.

Sprint, the third-largest U.S. wireless operator, has exclusive rights to the Pre through at least the end of the year. Larger rivals Verizon Wireless and AT&T Inc. have said they are also interested in carrying the phone.

Waiting List

Sprint’s store on Mission Street in San Francisco sold out of its allotment of 60 Pre phones within two hours, manager Daniel Chan said. The outlet started a waiting list and will get its next consignment in a few days, he said. About half the people who bought the Pre already owned an iPhone, he said.

Misha Vladimirskiy, a 30-year-old photographer from San Francisco, is on that waiting list and was told he should get his Pre in five days.

“I don’t mind waiting,” said Vladimirskiy, whose last three phones were from Palm. “This is 1,000-times better than the Treo.”

Sprint isn’t disclosing how many retailers sold out or when new supplies may come in from Palm, spokesman Mark Elliott said yesterday.

Palm may sell about 150,000 Pre phones this weekend, Lawrence Harris, an analyst at CL King & Associates, said in an interview. Piper Jaffray & Co.’s Michael Walkley puts the number at almost 200,000. New York-based Harris rates Palm “neutral” and Walkley, in Minneapolis, advises clients to buy the stock. Paul Coster, an analyst at JPMorgan Chase & Co. in New York, estimates weekend sales of more than 50,000.

Reputation at Stake

Palm aims to win back customers for smart phones, a market it helped create, after devices from Apple and Research In Motion Ltd. prevailed with newer features and operating systems. Palm hired retired iPod chief Jon Rubinstein in 2007 to develop the Pre.

Palm’s annual sales haven’t grown since 2006. Analysts say they will continue to drop the next two quarters, even with the Pre, according to estimates compiled by Bloomberg. Venture capital firm Elevation Partners has invested $425 million in Palm and owns about a third of the company.

“For Palm, what’s at stake is its reputation,” said Andy Castonguay, a research director at Yankee Group in Boston. “This is, I think, without exaggeration, a fundamental step forward if the company is going to continue to be relevant.”

Palm fell 64 cents to $13 in Nasdaq Stock Market trading on June 5. Sprint rose 8 cents to $5.11 on the New York Stock Exchange. Apple climbed 93 cents to $144.67 on the Nasdaq and has gained 70 percent this year.

Smart-Phone Summer

Sprint, based in Overland Park, Kansas, is rolling out new devices, possibly including one based on Google Inc.’s Android operating system, to win back customers after losing more than 4 million contract subscribers in the past year.

Pre buyers need to sign up for Sprint’s Simply Everything plans, which include unlimited data and messaging and start at $69.99 a month. AT&T Inc. charges iPhone users the same amount without messaging, according to the companies’ Web sites. The Pre is also available at RadioShack Corp. and some Wal-Mart Stores Inc. locations.

Carriers are pushing smart phones, which bring in extra data revenue as customers pay for Web access and messaging, to tap into one of the last areas of growth in the wireless market. The devices made up 23 percent of U.S. phone sales last quarter, up from 17 percent a year earlier, according to researcher NPD Group Inc. in Port Washington, New York.

‘About Time’

Sprint and Palm aren’t alone in releasing new phones. The Pre’s debut coincides with Apple’s annual developers’ conference. Cupertino, California-based Apple has said it will unveil a new operating system for the iPhone this week. Chief Executive Officer Steve Jobs has demonstrated a new version of the iPhone the past two years at the conference. Apple declined to comment, said Steve Dowling, a company spokesman.

Verizon Wireless, the largest U.S. mobile company, has said it has new BlackBerrys from Waterloo, Ontario-based RIM, as well as an Android phone in its lineup.

“I’ve been a Sprint customer forever,” said Beverly Durham, a 51-year-old insurance claims adjuster from Pasadena, California, who had lined up outside a neighborhood store before 8 a.m. “It’s about time Sprint came out with a new phone.”

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: June 7, 2009 00:01 EDT