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Falling Stocks

Today both Vivek Arya of Merrill Lynch and Phil Cusick of Macquarie Research downgraded their analytic opinions of Palm, with Arya moving Palm into the sell column, while Cusick took a more cautionary approach and advised not buying any more shares. What worries investors, however, is the reasoning behind their downgrades: sales of the Palm Pre Plus and Pixi Plus at Verizon have been less than stellar so far (though we do admit it is rather early in Palm's life on Big Red).

While sales of the Pre on Sprint were okay, they were clearly less than what Sprint CEO Dan Hesse had hoped. And the Pixi, well, how many Palm Pixi phones have you spotted in the wild? Verizon, meanwhile, is fresh off the launch of the Motorola Droid and HTC Droid Eris. From reports in our forums and the word of Arya, Verizon employees are pushing those handsets over the exclusive Pre Plus and Pixi Plus. All that in spite of the large marketing push from both Verizon and Palm.

The news has pummeled Palm’s stock, with shares down a painful 9.99% for just Tuesday, while the NASDAQ technology index dropped 1.28%. So far through February shares of Palm are down more than 21%; and down nearly 55% since hitting a high of $18.19 just five months ago. As a company, Palm is now worth $2.51 billion less than it was at the end of September, which is not so great when that leaves your value (including Elevation Partners’ 1/3 stake) at $2.08 billion.

The only way for Palm’s stock to hope to recover from this decline is for sales at Verizon to be spectacularly better than expected. While most Palm users don’t care about the stock price, it does matter. A higher stock price is indicative of investor confidence in Palm, and while some may think Palm stock isn’t worth the paper it’s printed on, investors and analysts do still seem to have some expectations for the company. Just not lofty ones. That lower stock price makes a takeover a much more appetizing prospect for any company looking to expand their mobile offerings or jump into the market. For stable companies like Apple or Microsoft, the stock price matters very little. For a company on increasingly shaky ground like Palm, every little thing matters - the value of their stock included.