After many months of hype followed by excellent reviews across the board, Palm is reporting that sales of its new flagship Pre device are much lower than originally anticipated. Palm shipped a total of 823,000 smartphones during its first quarter with an estimated 500,000 of those Pre devices. Those numbers are down sharply from both last year and projected sales for the Pre given the marketing campaign Palm surrounded it with.

While the ongoing economic troubles around the world have surely played a role, the outstanding sales of other handsets during their debuts in the past two years suggest that Palm has simply lost its user-base. With the Pre having only been released in North America, the numbers generated by the European launch later this year remain to be seen.

Palm indicated that revenues could fall to $240 million to $270 million US in the second quarter, a number that implies that Pre sales could fall to 500,000 units versus our previous estimate of 750,000 units. – Needham & Co. analyst Charlie Wolf

With Palm’s recent announcement that they would no longer develop devices using the Windows Mobile operating system in favor of their in-house WebOS, the company seeks to stay in the game against high-end competition like Apple’s iPhone and the Blackberry Storm through innovative software as well.