A long saga in the handheld computing industry came full circle Wednesday as Palm Inc. said it would acquire Handspring, a rival created by Palm’s own founders.

Palm

said the US$169 million transaction would see Handspring, best known for its Visor and Treo line of products, become part of the Palm Solutions Group, the business responsible for designing, making and marketing its hardware. Last year Palm announced its plan to spin off the OS side of its business as a separate entity, called PalmSource. Palm said Handspring’s shareholders will receive 0.09 Palm shares — and no shares of PalmSource — for each share of Handspring common stock owned.

Handspring was founded in 1998 by Jeff Hawkins and Donna Dubinsky, who also co-founded in Palm in 1992. At a Comdex Canada keynote last summer, Dubinsky said she and Hawkins had left Palm after three years of trying to convince 3Com,which owned Palm after acquiring U.S. Robotics in 1997, to spin the handheld maker off as its own company.

In a conference call annoucning the deal, Dubinsky said Handspring’s product would benefit from Palm’s strong brand in retail, while neither company has a sufficient product line for the enterprise.

Hawkins, meanwhile, said Palm has changed a lot since he left five years ago. “”This is not a reunion for me. There’s no nostalgia,”” he said. “”Together we’ll be able to deliver a much broader portfolio of products.””

In Canada, Palm commands the No. 1 position in the handheld market according to Toronto-based Evans Research Corp. Sony follows close behind, having seen shipments rise 62 per cent in the first quarter of this year over the same period in 2002.

Evans analyst Albert Daoust said Palm was likley attracted by Handspring’s Treo product, which combines elements of a handheld and a mobile phone, or a smartphone.

“”Palm’s thinking is that in 2005 this IP telephony market is going to go over well. There may be some intellectual property they want there,”” he said. “”They might want a product, and the Treo is a reasonably good product.””

Palm Solutions Group president Tom Bradley said the merger will allow Palm to achieve considerable cost savings and operating efficiencies, as well as a better selection of devices.

“”We see the product lines as not overlapping but very complementary,”” he said.

In the last two years, Palm has faced increasing competition in the handheld market following Microsoft’s decision to develop a PocketPC operating system for personal digital assistants. Consumer electronics specialists Toshiba and Cassio came out with devices last year, while Compaq’s successful iPaq product survived its merger with HP.

Palm responded by reorganizing its product line in 2002 into a high-end enterprise segment, served by its Tungsten devices, and the consumer segment, served by the Zire handhelds.

Darren Humphries, a business development manager for Florida-based Palm developer DDH Software Inc. who works in Toronto, said the Treo might not be worth Palm’s while.

“”The only thing Palm gets out of it is Jeff Hawkins, but how much do they even need him for new product development?”” he said. “”The Treo is a good product and everything, but it hasn’t sold like gangbusters, whereas the Zire has been selling millions and millions.””

Palm’s Canadian operation is run by Michael Moskowitz, while Handspring’s Canadian sales strategy was led by former Epson executive Jim Mandala. Synnex was Handspring’s key Canadian distributor.

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