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Palm Gets Sell Rating Due to Competition from Google Android

Palm (PALM Quote) was slapped with a sell rating Tuesday on concerns that the new arrivals in the smartphone market will crowd out the Pre.

The heroic makeover of Palm is facing a significant challenge as telcos like Verizon (VZ Quote), Sprint (S Quote), and AT&T (T Quote) align behind Apple (AAPL Quote), Research In Motion (RIMM Quote) and phones built on the Google (GOOG Quote) Android operating system, shoving Palm into fourth place among suppliers, writes BMO Capital Markets analyst Tim Long in a research note Tuesday.

GOOG Oct 27 2009, 12:26 PM EDT
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PALM Oct 27 2009, 12:27 PM EDT
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The downgrade comes a day ahead of Verizon’s introduction of the Motorola (MOT Quote) Droid phone running on Google’s Android system. It also follows a report earlier this month that Verizon was snubbing Palm next year and putting its full support behind Android and BlackBerry phones. Verizon has said it plans to offer the Palm Pre and Pixi phone early next year.

Google also has plans as reported here, to bring its own Android phone to the market as early as this year.

The heavy competition and the fading popularity of the Pre phone along with the potential cannibalization of Pre by the Pixi next month does not bode well for Palm, Long notes.

“We believe that the company will miss its guidance for the second half of fiscal 2010,” writes Long.

Palm shares fell 5.25% to $13.53 in late morning trading Tuesday.

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