It is all over now for Motorola (MOT) and Palm (PALM). They might have had a chance to pick up enough market shares to dig themselves out of the holes of late products, crummy products, and weak financial performance. RIM (RIMM), Apple (AAPL), Samsung, and Nokia (NOK) have flanked them then overrun them. A bad economy makes their positions untenable.

Word from Wall St. is that sales of the new Motorola (MOT) Razr 2 have been poor. To some extent is is a product that a consumer would buy instead of an iPhone. Motorola is never going to win that war, and other big handset companies are in the market with competing products. If Motorola can manage selling 35 million handsets this quarter it will be a miracle. It would not be hard to believe that the number could fall to 30 million, putting the company’s market share at 12%. It was over 20% not that long ago. Motorola’s shares are down almost 9% today at $12.20. Watch for $10. It could be coming.

Matters are worse for Palm. Elevation Partners put $325 million into Palm in June. Elevation partner Roger McNamee gets write-ups in places like Portfolio Magazine because he is friends with Bono of U2 and his firm owns part of Forbes. He can write off the investment in Palm. All of it.

In a difficult economy even RIM (RIMM) and other handset companies will have trouble selling higher end smartphones. Palm’s shares have been as low as $4.50 today. The have a 52-week high of $19.50. Revenue slipped to $350 million last quarter and the firm had an operating loss of $42 million.

Both business and consumer buyers of handsets can wait a product cycle or two before buying a new product. Even if Palm makes it to market with a better line-up line this year, there may not be many buyers.

No one should be surprised to see Palm shares below $2 before mid-year.

Douglas A. McIntyre

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