Palm falls as analysts cite concerns that new handset sales are sluggish at Verizon Wireless

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Palm falls as sales of new phones appear weak

SAN FRANCISCO — Palm Inc. shares fell Tuesday as analysts raised concerns that the smart phones the company recently released through Verizon Wireless are not selling well.

The stock slid 66 cents, or 7.2 percent, to $8.45 in afternoon trading. In the past year, the stock has traded between $5.85 and $18.09.

In a client note Tuesday, Macquarie Research analyst Phil Cusick downgraded the stock to “Neutral” from “Outperform,” citing “weak” sales checks at Verizon and increasing operating expenses resulting from higher-than-expected spending on promotions.

Verizon began selling upgraded versions of Palm’s Pre and Pixi smart phones — the Pre and Pixi Plus — in late January. The original Pre and Pixi went on sale last year through Sprint Nextel Corp.

The phones use Palm’s latest operating system, webOS. They are the company’s latest attempt to regain share in the fast-growing smart phone market. Palm, which was a smart phone pioneer, has struggled for years as Apple Inc.’s iPhone and Research In Motion Ltd.’s BlackBerry have grown increasingly popular among both consumer and business users.

Cusick wrote that sales at Verizon are improving, but “off a very low base,” and that checks show Palm’s sales at Sprint haven’t improved since Verizon started selling the new phones.

The analyst lowered his price target for the stock by $4 to $10.

Also Tuesday, Stifel Nicolaus analyst Sanjiv Wadhwani began covering Palm with a “Hold” rating.

Wadhwani believes Palm could sell 1.4 million phones per quarter by the last three months of 2010, which would give it 2 percent of all smart phone shipments and would be about double its estimated share of the market at the same time in 2009.

But he, too, said checks indicated that sales have been slow at new carriers such as Verizon.

Both analysts think it will be difficult for Palm to meet their outlook for $1.6 billion to $1.8 billion in revenue for the fiscal year, which ends in May.