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Update: Engadget talked with Palm and reported that the company overproduced inventory, and that production was halted to observe Chinese New Year. Normal production will resume next month. Find the original story below.

Having just announced new smartphone hardware in January for Verizon, the last thing we expect to hear from Palm is a massive hardware production halt. But according to Boy Genius Report, who points to a report by OTR Global, Palm could be aiming to do just that.

Sources say that Palm has ordered Foxconn, which builds the phones, to halt production of the Pre and Pre+ this month. Both the Pixi and Pixi+ phones are also affected, although there’s a chance that the Pixi+ may see reduced delivery instead of being halted completely. It’s unclear if production will resume in March.

OTR’s three anonymous sources come from within the Taiwan handset component business, and are all listed as repeat information sources — which gives their word a bit more weight.

There are many reasons why Palm could have initiated this halt. But since it’s happening so close to the announcement of the Pre+ and Pixi+ for Verizon, I can’t imagine that it’s anything good. There could be a hardware flaw with the recent production units (although that’s not likely since Palm has been building Pres without issue for a year), or it could be related to a potential business deal — perhaps a possible takeover?

We will keep an eye on this breaking news. If true, it could mean something massive for Palm.

Read the full OTR report below:

Palm Inc. Alert
Palm Orders Production Halt of Pre and Pre+ in February
February 11, 2010

PALM, S, VZ, 2038 HK, 8078 TT

Sources: 3 sources Taiwan handset component supply chain (all repeats)

Key sources in the Taiwan handset supply chain said Palm Inc. has ordered assembler Foxconn International Holdings Co. Ltd. to suspend production of both the Pre and Pre+ in February. “The decision is very sudden, and Foxconn was told to reduce all February Pre forecast to zero on Wednesday and nobody knows whether shipment will resume in March,” said a key source. The source said the CDMA2000 Pre to Sprint and the CDMA2000 Pre+ to Verizon were affected.

Pixi Production Suspended Too?
One source said Palm also told Compal Communications Inc. to suspend shipment of the Pixi and Pixi+ in February, while another source said that production is still going ahead with the Pixi+ to Verizon, but actual delivery in February will amount to less than 5,000 units.

Reporter: Van Tran
Editor: Hartmut Leuschner

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