PALM Palm (MM)

The high-profile launch of Sprint Nextel Corp.'s (S) Evo 4G smartphone, easily the carrier's most important product of the year, has brought a surprising mix of triumph and frustration.

The Evo is a hit but not nearly as successful as Sprint first thought--the carrier mistakenly overstated how well the smartphone sold in its first day. First-day sales were slowed when the heavy volume temporarily overloaded its account activation system. While demand remains high, shortages have caused Sprint to turn away many disappointed customers.

Much of Sprint's effort to reverse its flagging contract subscriber business hinges upon the success of the Evo, the first U.S. phone capable of riding on the faster fourth-generation wireless network. As a result, the device has drawn its share of the industry's attention when all eyes would normally be on the unveiling of the latest Apple Inc. (AAPL) iPhone.

Which makes the miscalculation over its initial sales glaring. Sprint didn't provide actual numbers and only said the number of Evos sold in the first day was three times greater than the combined number of Palm Inc. (PALM) Pre and Samsung Electronics Co. (005930.SE) Instinct phones sold over their first three days. The devices were the prior flagship phones from Sprint over the past two years.

Late Tuesday, Sprint corrected the numbers, saying that first-day sales of the Evo were in line with the combined Pre and Instinct sales, or three times less than what it previously said. Sprint spokeswoman Cristi Allen said that the company's Evo numbers were correct, but that it had gotten the wrong number on the combined Pre and Instinct sales.

"It was truly a miscalculation," Allen said.

The mistake forced Wall Street to cut their estimates on Evo sales. BTIG Research analyst Walter Piecyk cut his forecast on first-weekend sales to 150,000, down from a prior range of 250,000 to 300,000.

Comparing first-day sales alone, Sprint said it sold twice as many Evos as the Pre and six times as many Evos as Instincts.

Sprint has had problems meeting demand for the device. The company lists the Evo as sold out on its website, and there have been widespread reports of shortages.

Chief Financial Officer Robert Brust called it the same "wonderful problem AT&T had with the iPhone" during an investor conference on Wednesday. Generally, all of the carriers cede some customers to AT&T Inc. (T) as people nab the new iPhone. Brust said he was eager to see how the Evo stacks up this time around.

Still, some on Wall Street were critical of Sprint's handling of the launch.

"It should be disappointing to investors that the company was not prepared to sell more phones given the demand," Piecyk said.

Sprint faced a similar problem a year ago with its long-time partner Palm Inc. (PALM) over the launch of the Pre. The company couldn't get enough phones in the store, and shortages hamstrung its momentum.

The company has learned its lesson, Allen said, noting that the supply chain is running more smoothly than a year ago, and that larger stores were getting a daily resupply of Evos.

"The demand was beyond what anyone could have expected," she said.

HTC Corp. (2498.TW, HTCXF), which manufactured the Evo phone, is working to produce more devices and ship them as quickly as possible, said HTC spokesman Keith Nowak.

Sprint, like most of the other carriers, is hoping the appeal of Google Inc.'s (GOOG) Android operating system and HTC's design flourishes will win back high-end subscribers who had fled to AT&T or Verizon Wireless. It is also using the Evo 4G to jumpstart interest in the 4G network offered in select cities by Clearwire Corp. (CLWR). Sprint owns a majority stake in Clearwire, and has staked its future on the successful early adoption of 4G.

Sprint shares recently rose 1.5% to $4.66.

-By Roger Cheng, Dow Jones Newswires; 212-416-2153; roger.cheng@dowjones.com

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