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Speculation grows that Palm will use Windows Mobile

Rumors continue to circulate that Palm Inc. will build a version of its Treo smart phone using Microsoft Corp.’s Windows Mobile platform, spurning its longtime support for Palm operating-system vendor PalmSource Inc. If true, the move would represent a significant event for all three companies.

Internet sites for gadget enthusiasts have been buzzing with specs and pictures of the supposed device, which features a tiny keyboard and Microsoft’s Windows Mobile 5.0 software. Indeed, the general industry clamor has risen to such a pitch that some companies are banking on the move; software company Syware Inc. announced it will provide support for Treo users transitioning from the Palm OS to Windows Mobile.

Representatives from Palm, Microsoft and PalmSource declined to comment on the rumors.

Nonetheless, if Palm does spring for Microsoft’s platform, the move would represent a significant change in the company’s strategy. Palm has long served as a proponent of the handheld computer industry in general and the Palm operating system specifically. And although Palm spun out its operating-system business two years ago as PalmSource, Palm continues to sell only Palm OS products.

However, a Windows Mobile Treo could stand as Palm’s attempt to break open the corporate market. Businesses have largely coalesced around Microsoft’s software for desktop computers. Many agree that mobile workers and information technology managers could cast a favorable eye toward smart phones that also run Windows software. Indeed, Motorola Inc. has largely based its enterprise strategy around devices running Windows Mobile.

The move also would represent a major boost to Microsoft in its long-running battle with the Palm OS. Although Microsoft’s Mobile and Embedded Devices business continues to lose money, the company has been scoring significant licensing victories with the likes of Motorola, Samsung Electronics Co. Ltd., High Tech Computer Corp. and others. Turning Palm-its longtime adversary on the handheld computer front-onto its products could give Microsoft a morale boost as well as a financial gain.

Aside from Palm and Microsoft, the stakes are perhaps highest for PalmSource. The company’s revenues have been flat during the past two years, and its customer list is dwindling. Palm OS licensee Sony Corp. last year quit the personal digital assistant market, and Tapwave Inc. recently shuttered its Palm OS-based Zodiac video-game business. Further, David Nagel, PalmSource’s chief executive, recently quit the company for unexplained reasons. Palm accounts for the vast majority of PalmSource’s business, and a move to Microsoft’s camp would represent another major blow.

Still, PalmSource can rest on the fact that Palm recently renewed its license for the operating system through 2009. LG Electronics Co. Ltd., the world’s fourth-largest handset maker, also recently signed up as a Palm OS licensee.

In an effort to stabilize its business, PalmSource has outlined plans to move into the mobile-phone market with two new Linux-based products. The company has not provided details or release dates for the products.

The first product will be a version of its operating system running on top of open-source Linux technology and will be aimed at the high-end smart-phone market. The second platform, based on technology the company acquired from China MobileSoft Ltd. early this year, will run on Linux and will target the mid- and low-tier phone markets.

PalmSource’s moves put it up against not only Microsoft on the high end, but also players like Openwave Systems Inc., MontaVista Software Inc. and Trolltech on the mid and low ends. MontaVista and Trolltech specifically sell Linux software to mobile-phone makers, and PalmSource plans to take them on directly with its forthcoming platform for feature phones.

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