June/July 2003

Palm is hoping to find new converts to its operating system for PDAs (personal digital assistants) following its acquisition in June of rival Handspring. In a back-to-back deal it has spun off its Palmsource software division as a separate business owned by its shareholders, and says it is hoping to attract new licensing arrangements for its OS from third-party developers.

Already several notable PDA makers including Sony use the Palm OS (there has even been speculation that Sony might like to acquire it). It is also used in some handheld terminals and industrial PDAs; Symbol, for instance, offers it as an option alongside Windows systems, and recent users have included Ocado, the Internet grocery company.

However, Microsoft's Windows CE and Pocket PC operating systems have been adopted far more widely for industrial handheld terminals and embedded applications. Many would argue that they are close to becoming the de facto standard in this arena.

Palm was started in 1992, and launched its famous Palmpilot range four years later. In 1998 founders Donna Dubinsky and Jeff Hawkins left to set up Handspring, which uses the Palm OS under licence. Handspring's more adventurous range includes the Treo combined smartphone and PDA, and some speculate that this product line was one of the attractions for Palm.

 

Arguably another reason for the merger is that Palm's market share, although a dominant 36 per cent last year, has been shrinking as Windows CE's has grown. Handspring's 6 per cent share pushes it up again, and gives the company new critical mass.

But the whole PDA market has been sluggish (down from 13.5 million to 12.4 million last year), and price cutting by major CE/Pocket PC suppliers such as Dell means that Palm's historical price advantage in the consumer market has been extensively eroded.

Neither the Palm OS nor the rival Windows OS has become the standard for mainstream smartphones, which some believe represent the final battleground in this market. But for the time being, the merger could put Palm itself back in stronger contention, while the OS spin-off appears to clear obstacles to its acquisition by a third party, which might give it a further boost.