Palm picks up Handspring

Palm Inc.’s recent purchase of Handspring Inc. is a sign of things to come for the handheld industry, according to industry observers.

Increasing competition from paging and messaging devices coupled with the slowing growth of the PDA market, will “inevitably” lead to continued consolidation across the handheld market, said Phil Redman, vice-president, mobile and wireless research at Gartner Inc. in Boston.

Roberta Fox, president and senior partner at Fox Group Consulting in Markham, Ont., agreed that consolidation will continue, not only between device manufacturers but also between types of devices. For example, a Tablet PC company could buy a PDA outfit, she offered.

Palm’s purchase is an effort to bring talented engineers and personnel back into the company, Redman said.

“The challenge will be melding the new guard at Palm with the old guard that left because of the different vision and personality conflicts…,” he explained.

Fox called Palm’s move “buying market share and buying your competitor.” In Canada, she said Handspring only enjoyed success in the low-end consumer market, adding it didn’t have a presence in the enterprise space. She noted that if Palm did make any gains from the purchase in Canada, it is limited to shares in the consumer market and she therefore didn’t rate the deal very highly for Palm.

Currently, Milpitas. Calif.-based Palm is comprised of two business units – PalmSource Inc., a subsidiary responsible for developing the Palm operating system, and Palm Solutions Group, a business unit responsible for designing and marketing the company’s handheld devices. According to reports, Palm will spin off PalmSource Inc. Following the completion of the spin-off, Handspring will be merged with Palm’s Solutions Group and the merged company will be named later in the year.

Mountain View, Calif.-based Handspring is known for its Treo line of smartphones and software for handheld devices and mobile phones. Its shareholders will receive 0.09 Palm shares for each of Handspring’s common shares.

The merged company will be led by Tom Bradley, Palm Solutions Group president and chief executive officer. The new business will then be divided into two units: handheld computing solutions and smartphone solutions.

The company has high aspirations for what the deal could mean to the handheld industry.

“We view today’s announcement as having a profound and transforming affect on the structure of the handheld industry, enabling new growth opportunities,” said Eric Benhamou, chairman and chief executive officer of Palm during a conference call.

Strategically, Palm decided to acquire Handspring to focus on its software platform licensing business and to strengthen its handheld products and services, he said. As for the buy itself, “We’re creating one company that combines the best capabilities for strong operational management and innovation…especially when competition has intensified,” Benhamou said.

In 1992 Palm was founded by Jeff Hawkins and Donna Dubinsky, both of whom left the company because of management conflicts and went on to form Handspring. If there remain any ill feelings, Dubinsky, Handspring’s chief executive officer, isn’t letting on, saying the two companies “share a vision” for the potential handheld and smartphone “landscape of personal computing.”

According to the companies, approximately 125 people will lose their jobs as a direct result of the merger but they did not specify where the cuts would take place. The cuts are expected to save Palm about US$25 million in cost savings annually.