Jan. 26 (Bloomberg) -- Kevin McNiff plans to buy Palm Inc.’s new Pre because it’s media friendly and has a keyboard. The only thing he doesn’t love about the phone is the prospect of getting service from Sprint Nextel Corp.

Palm named the carrier as its exclusive partner on Jan. 8, and the two will introduce the device in the first half of 2009. McNiff, a 53-year-old retiree in San Francisco, said he’s worried about switching to the carrier because of its spate of losses and pile of more than $20 billion in debt.

Palm and its biggest investor are betting that he’s wrong. Sprint’s an ideal partner because of its high-speed network and the lack of a phone to fill the niche Apple Inc.’s iPhone filled at AT&T Inc., according to Roger McNamee, co-founder of Palm shareholder Elevation Partners.

“Sprint has gone three years without a ‘hero’ phone in the smart-phone business,” McNamee said in an interview this month in Menlo Park, California. “From our point of view, this is the perfect carrier to work with.”

Both companies could use a hit. Sprint lost more than $1 billion in the first three quarters of 2008 as customers fled to rivals, and said today that it will cut 8,000 jobs, or about 14 percent of its employees. Sunnyvale, California-based Palm has posted six straight quarters of losses without a new smart phone to replace the aging Centro and Treo models.

Judging by the response to its debut, the Pre is up to that challenge. The phone, which runs on Palm’s new WebOS software, was deemed the best product at the Consumer Electronics Show by CNet, the gadget-review site owned by CBS Corp.

Pre Features

The Pre has a touch screen and a slide-out keyboard, can connect to multiple calendars, and runs more than one application simultaneously. Shipments of those types of devices, also known as smart phones, probably will climb 32 percent to about 190.8 million this year, according to researcher Gartner Inc.

“There’s a great opportunity to have a big impact on the market, and I believe that’s what the Pre is capable of,” said Kevin Packingham, Sprint’s vice president of product and technology development. The phone has received a great response on Sprint’s Web site and has the potential to be a “high- volume” device, he said in an interview. He declined to elaborate on pricing or the timing of the release.

Sprint lost at least 3 million clients last year, hurt by complaints about customer service and competition from rival devices at AT&T and Verizon Wireless.

Hits Driven

“The wireless market has become a hits-driven model where market share hinges on who has the hottest phone,” said Sanford C. Bernstein & Co. analyst Craig Moffett. “It’s not clear if there’s much demand for anything other than the marquee brands.” The New York-based analyst has a “market perform” rating on Sprint shares and doesn’t own any.

Even the “marquee” names are struggling as they fight off a recession that has eaten into consumer confidence. Apple said Jan. 21 that it sold 4.36 million iPhones in the holiday quarter, trailing analysts’ projections. Chief Operating Officer Tim Cook said then that the economic slump may delay the adoption of smart phones, and Gartner projects that total mobile-phone sales will drop for the first time this year since 2001.

Best Buy

The companies may look to Best Buy Co., the world’s largest electronics retailer, to help distribute the phone. Best Buy Mobile unit President Shawn Score said he’s in talks with Sprint about carrying the Pre. The unit has become the biggest source of new subscribers for U.S. carriers, he said in an interview last week.

Palm also could face another challenge from Apple: a lawsuit based on technology. Cook said then that his company will “go after” parties that copy the iPhone’s touch-screen technology, fueling speculation on blogs that Apple might target Palm’s new WebOS software. He declined to be more specific.

“Apple is not the first to do multitouch and it has a long history dating back to the mid-1980s,” Lynn Fox, a spokeswoman for Palm, said in response to the speculation. She declined to elaborate further.

Last year, Overland Park, Kansas-based Sprint positioned Samsung Electronics Co.’s Instinct as its answer to the iPhone. While existing customers upgraded, the Instinct didn’t do much to entice consumers away from other carriers, said Michael Nelson, an analyst with Stanford Group in New York, who has a “hold” rating on the shares and doesn’t own any.

Third Largest

Sprint still had more than 50 million subscribers over all as of the end of the third quarter, making it the third-biggest mobile-phone operator in the U.S.

“The notion that Sprint is a barrier to us being successful is ridiculous,” said McNamee, who co-founded Elevation with U2 lead singer Bono in 2004. “It’s a huge market and Sprint is approximately 75 percent to 80 percent the size of AT&T and Verizon.”

His Menlo Park, California-based investment firm raised its stake in Palm to 39 percent last month, paying $100 million for new preferred stock that’s convertible into common shares at $3.25 each. In 2007, it spent $325 million to buy a stake of about 25 percent.

Other investors appear to share his confidence, with Palm shares more than doubling since the Pre’s introduction at CES. The stock rose 5 cents to $7.37 in Nasdaq Stock Market trading at 4 p.m. New York time. Sprint, which has declined 73 percent in the past year, rose 3 cents to $2.49 on the New York Stock Exchange.

Taking Customers

For Sprint, the bigger potential of the Pre is poaching customers from other carriers, like AT&T did with Cupertino, California-based Apple’s iPhone, Stanford’s Nelson said. It will probably cost $150 to $200 with a two-year contract, he estimated.

The phone also will help reduce customer turnover as subscribers upgrade, he said. One such subscriber is Rick LeJuerrne, who plans to buy the Pre in the first three months of its availability. The 39-year-old works as a business consultant and teaches entrepreneurship at Washburn University in Topeka, Kansas.

“What got me excited is the design,” said LeJuerrne. “I got interested in it at the CES show. It stole the show.”

To contact the reporters on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Last Updated: January 26, 2009 16:21 EST