In his latest note, he halved his target price on Palm (PALM) to $10 and lowered his forecast for third-quarter handset shipments to 900,000, from 1.1 million, and his forecast for fourth-quarter shipments to 1.2 million, from 1.5 million.

“Palm’s superior platform features have not translated into sufficient carrier support and consumer demand, and we are concerned the window of opportunity may be closing as Google’s Android ecosystem gains ground, RIM revitalizes its portfolio, iPhone increases its presence, and as Microsoft reboots its efforts with Windows Phone 7,” Arya wrote in a research note. “With only $130 million of net cash in an opex intensive space, Palm’s options may be limited in our view.”

“Despite increasing smartphone competition, Palm can maintain differentiation and remains well-positioned to launch its products with multiple new Tier-1 carriers in early 2010 by which time it should have a robust apps catalog,” Arya wrote. “While we expect the stock to remain volatile, the recent sell-off creates an interesting buying opportunity, in our opinion, for a company with an attractive platform, selling into a high-growth market, and at a compelling valuation.”

Interestingly, Arya notes that Palm’s webOS application ecosystem, initially something of a disappointment, is growing a bit more rapidly these days with between 50 and 100 apps being added to Palm’s App Catalog each week. He expects growth to continue with the debut of a new feature enabling customers to download apps simply by clicking on a URL. Arya believes this will dramatically improve discovery of apps and attract more attention from developers. His conclusion: With a more robust App Catalog and two attractive handsets, Palm is well-positioned to launch its webOS line with multiple new Tier-1 carriers like Verizon (VZ) in early 2010.

Several analysts weighed in today with estimate cuts, pressuring the stock.

Merrill Lynch’s Vivek Arya cut this EPS estimate for the fiscal third quarter ended November to 80 cents from 95 cents, which is now below the Street at 92 cents. For the February 2009 fiscal year, he goes to $3.45, from $3.61, and for 2010, he goes to $4.08, from $4.45. Arya cited a number of factors for the downgrade, including macro headwinds, the late North American launch of both the Storm and the Bold, and increased competition from the Apple (AAPL) iPhone. He also notes that warnings from Best Buy, Circuit City and Intel suggest we are in for weak consumer demand in calendar Q4. “While smartphone demand would normally be more resilient due to carrier promotions and productivity benefits, the current environment demands caution,” he writes. His target price on the stock drops to $65, from $80.

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