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October 28, 2003 GMT

Palm Threads the Top for Spinoff

From: Richard Shim - CNet

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Shareholders of handheld pioneer Palm will vote Tuesday on the acquisition of rival Handspring and the spin off of Palm's software division, as the company looks to split up in an effort to revitalize the device market.

The once promising handheld market has been slumping, with worldwide shipments down so far this year compared with last, according to researcher IDC. A silver lining appeared in the third quarter, as shipments were up 1.1 percent, to 2.37 million units, because of a strong charge by Hewlett-Packard. But in the first quarter, shipments were down 21 percent, and in the second quarter, shipments were down 10.7 percent.

However, Palm, the market share leader in devices and operating systems, is hoping that two separate companies, each focused on its own charter, will be in a better position to take advantage of, and help start a revival in, the market.

Analysts have attributed the steady decline in device shipments to a lack of innovation, limiting the market to the loyal enthusiast crowd. However, reactions from consumers, product reviewers and analysts to new products from both divisions as well as from Handspring have been positive, giving the company momentum going into the vote.

Palm's consumer-focused Zire line, which includes the $99 Zire and the $299 Zire 71 with integrated digital camera, has been a hit with consumers, according to retail market tracker NPD Techworld, and has helped the company boost its shipment numbers and average device selling price.

Handspring, which has turned its attention to the cell phone market from the organizers, has also been receiving laurels by reviewers for its combination organizer and phone device called the Treo 600, which just started selling in the United States with carrier partner Sprint.

PalmSource will also be more attentive to the cell phone market with version 6.0 of the Palm operating system, code-named Sahara and available to developers Dec. 29.

Palm's main business has come from the consumer market, but the company has tried to attract the business market for some time, with limited success.

"It's always been expected that when (information technology) spending increased, PDAs would get a slice of that," said IDC analyst Alex Slawsby, "which would quickly change the market from a consumer driven one to a business driven market. But the reality is that mobile phones are the focus now, so once IT does start spending, the PDA may not be the best device to address business."

Still, each division of Palm faces credible threats from rivals such as Dell and Hewlett-Packard in PDAs and software giant Microsoft on the operating system side.

Palm has already passed regulatory hurdles in its bid to acquire Handspring. And Institutional Shareholder Services, a company that advises large shareholders how to vote on proxy matters, advised Handspring stockholders to vote in favor of the merger, leading many to expect the vote to pass.

Palm announced in June plans to acquire Handspring, along with its finalized plans to spin off PalmSource. The company also revealed a new name, PalmOne, for its hardware division, formerly known as the Palm Solutions Group.

The familiar "PALM" ticker symbol will be replaced by PalmSource's "PSRC" and PalmOne's "PLMO," according to the company.

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