Palm Fortunes Fade as Motorola Droid Hogs Spotlight

Palm Inc.’s (PALM) shares see-sawed on Nov. 2 as the mobile device maker faced tumult from two sources: the impending rollout of rival Motorola‘s (MOT) Droid handset, and a significant downgrade from investment bank Citigroup.

While on the rise in mid-morning trading, Palm’s stock price went down again in early afternoon activity. Its 52-week high stands at $18.09, a far cry from the 1:46 p.m. valuation of $11.13.

Telecom and financial analysts say Palm faces serious competition from Motorola, whose new Droid, built on Google’s open-source Android operating system, is attracting a lot of positive attention. And that’s got observers in a delighted tizzy because it’s been a long time since Motorola caused any industry chaos with its communications products.

Indeed, the RAZR, first introduced in 2004, was Motorola’s last big coup – the Q, launched more than three years ago, failed to gain traction among smartphone users and soon was outshined by the Apple iPhone (as was every other device). But Motorola is on the verge of turning itself around with the Droid, which will be sold through several wireless providers, including Sprint Nextel Corp. (S), the exclusive carrier of the Palm Pre smartphone.

As a result, Palm is watching its fortunes fade. On Nov. 2, Citigroup analyst Jim Suva advised shareholders to sell Palm, as well as BlackBerry maker Research in Motion, stock. His reasoning was that the urge to spend more on marketing could strain Palm’s already limited finances. At the same time, Suva upgraded Motorola’s rating to ‘buy’ because the struggling manufacturer is about to get something right. Motorola, Suva wrote in a widely distributed memo to clients, “is launching one of the more compelling offerings at a time when many investors have given up on the company’s handsets.”

Motorola has gone “from stale to sleek” with the Droid, Suva wrote. Plus, the heavy, snarky promotion from Verizon Wireless promises to only help catapult Motorola back into investors’ – not to mention consumers’ – favor.

So are Palm and Motorola about to pull a switch, a telephonic Freaky Friday? It looks that way. Palm’s shares dropped 23 percent last week alone. Motorola’s, on the other hand, were close to reaching the company’s 52-week high of $9.45.