Palm faces challenges as competition heats up

As Palm heads into the critical holiday shopping season, analysts are starting to worry the company will be outshined by the competition.

Specifically, Motorola seems to have stolen some of the smartphone thunder from Palm and its webOS platform with the introduction of its first two Android phones. Citi analyst Jim Suva downgraded Palm and Research In Motion while upgrading Motorola.

"Motorola is launching of one of the most compelling offerings at [a] time when many investors have given up on the company's handsets," Suva wrote in a research note. "The revolution of product and application service offerings is going to start to crack open the enterprise door and could pose a risk for BlackBerry. Major shifts in promotion support creating a promotion commotion in the months ahead [that favor] Motorola and post a challenge for RIM and Palm."

Indeed, Motorola will have Verizon Wireless backing its Droid smartphone and T-Mobile USA touting the Cliq during the holiday season. And Sprint Nextel, the only U.S. carrier currently offering the Palm Pre, is likely to emphasize its new Android offerings, the HTC Hero and the Samsung Moment, via its holiday marketing, possibly at the expense of the Pre. Further, Sprint is set to launch Palm's second webOS phone, the Pixi, later this month for $99, which could potentially cannibalize Pre sales. (In its most recent quarterly report, Palm disclosed sales of around 800,000 smartphones, the vast majority of which were the Pre.)

And it appears investors have noticed the warnings signs. During the past few weeks, Palm's stock has dropped precipitously, from around $17 per share at the end of September to around $12 per share today.

However, Palm likely is hoping to boost its standings in the coming months with expanded distribution; the company has rolled out the Pre in international markets, and Verizon Wireless has said it will sell the device sometime next year.

For more:
- see this Barron's blog post
- see this article

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