Last week, Palm's stock took a beating ("Did Fools Rush In") but managed to recover. An informed reader let me know that the volatility was actually due to hedge fund liquidations. Today Palm (PALM) shares are being impacted due to downgrades made by analysts at Avian Securities and Morgan Keegan. Per a story in Barron's by Eric Savitz, Avian analyst Matthew Thornton cut his rating on the stock to Neutral from Positive. Based on discussions he had with management and a survey of U.S. retailers, he believes that smartphone sales will come in below expectations for the next several quarters.

In the same story, Savitz mentions that Morgan Keegan's Tavis McCourt downgraded the shares to Market Perform from Outperform. However McCourt's concerns were different. He believes that Palm's cash position will significantly erode ($248 million at the end of the latest quarter to $75 million over the next year) which leaves "little room for error."

A lot seems to be riding on the new products due to launch in 2009, and McCourt stated that "until we become more certain that Palm can execute this turnaround without additional capital, we believe it is prudent to downgrade our rating."

To round out analyst activity, Lawrence Harris from C.L. King wrote it is "increasingly unlikely" that the Treo Pro will be offered by AT&T in time for the holiday shopping season, and that the same is true for the Treo 800w at Verizon, which may serve as a sort of counterbalance to slowing Centro sales at Sprint. He feels the Centro will feel more competitive pressure from newer entry-level text messaging oriented devices offered by all the major carriers.

Let's see... The margins will probably be better on the Treo Pro and Treo 800w, so if they can get some traction, Palm should get a boost. The other thing to note is that the downgrade by Avian's Thornton put the target price on PALM in the $5 from $9 range. To put that in perspective, today the stock is bouncing around between $3.19 and $3.70 so far. What's that saying about clouds having silver linings?

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