Palm grasps Handspring

Palm Wednesday announced that it is acquiring its best-known software licensee, Handspring.

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Palm Wednesday announced that it is acquiring its best-known software licensee, Handspring.

The deal, just approved by both boards of directors, should become final this fall. It will take place as Palm completes the separate spinoff of one of its own businesses, PalmSource, which develops and licenses the Palm OS software.

The other business, Palm Solutions Group, which designs and builds Palm OS-based handheld computers, will merge with Handspring. Later this year, the new company will get a new name.

The result will be a hardware company with two divisions, one focused on handheld computers (the Palm Solutions Group legacy), the other focused on smart wireless phone, which is the market targeted by Handspring with its well-received Treo phones.

Palm has been pushing its software aggressively as a platform for a range of handheld devices, as Microsoft has been doing with its rival Windows CE. The huge handset market is seen as a ripe opportunity for both vendors, on the assumption that higher bandwidth, more reliable data services from carriers, and more sophisticated handset features will persuade cell phone users to do something other than talk with these devices.

Sales of handheld devices without voice capabilities have been dropping steadily over the last two quarters, according to data from IDC. Palm is still the market leader for handhelds across all operating systems, but its lead over HP, which relies on Windows CE, has been slipping.

"Palm needs a stronger foothold in the wireless space. Voice-centric products are where the future opportunities and revenue exist," said Alex Slawsby, an analyst with IDC.

Handspring makes the Treo Communicator products for both GSM (Global System for Mobile Communications) and CDMA (Code Division Multiple Access) cellular networks. Palm offers the Tungsten W product for GSM networks, but it is expensive, and the Treo products feature more tightly integrated voice capabilities, according to Palm.

Palm will have a tough time competing outside the U.S. against smart phone vendors such as Nokia or Sony Ericsson Mobile Communications, Slawsby said. But Treo is a recognized brand name within the U.S., and Palm can build market share while developing devices that approach the sophistication of the Nokia and Sony Ericsson devices, he said.

The merged company will be headed up by Todd Bradley, currently president and CEO of Palm Solutions. Handspring Chairman Jeff Hawkins, one of the original co-founders of Palm in 1992 and of Handspring in 1998, will become CTO for the merged company. Hawkins created the original Palm Pilot device, and oversaw Handspring's product designs.

Ken Wirt, currently Palm's senior vice president of sales and marketing, will run the handheld unit, while Handspring President and Chief Operating Officer Ed Colligan will run the smart-phone side.

Donna Dubinsky, Handspring's current CEO (and like Hawkins a co-founder of both companies) will join the board of directors of the merged company.