Palm teams with Microsoft on smart phone

Palm Inc. plans to announce on Monday a Treo smart phone powered by rival Microsoft Corp.'s operating system, a move analysts said likely means new business opportunities for both companies.

Verizon Wireless, which is also participating in the San Francisco product announcement, will distribute the new devices, computer-industry analyst Rob Enderle said.

The launch marks the first time one of Palm's popular hand-held products is available with Microsoft's Windows Mobile 5 operating system as an alternative to the once-ubiquitous PalmOS.

"This is very important for Palm," said Todd Kort, an analyst for Gartner. "PalmOS is a fairly ancient operating system, and if Palm had stuck with it, (Palm) might have followed PalmOS into oblivion."

Five years ago, PalmOS was used on 70 percent of the world's smart phones and personal digital assistants, Kort said. Now its market share is in the low single digits.

Having a Microsoft operating system will help Palm gain customers overseas, where its market share is small, Kort said. It will also attract corporate buyers for Palm, whose customer base now consists mainly of consumers, he said.

The deal will give Microsoft an opening with one of the nation's leading makers of smart phones -- phones that combine voice capability with some functions of a computer, including e-mail capability and an organizer.

While Microsoft, the world's largest software maker, has increased its share of the hand-held computer market, it has struggled to make inroads in smart phones.

"For Microsoft, this means they have broken into one of the leading smart phone manufacturers, and it validates their software," said Pablo Perez-Fernandez, a ThinkEquity Partners analyst.

A Verizon Wireless spokeswoman said she had no information on the announcement, and spokesmen for Palm and Microsoft declined to comment Friday.

But the Redmond giant over a year ago said a deal like this could happen.

Pieter Knook, the senior vice president in charge of Microsoft's Mobile and Embedded Devices division, told reporters in May 2004 that such a scenario was "perfectly possible."

Making it possible was the October 2003 decision by Palm Inc. to separate into two independent companies: one for hardware, called PalmOne Inc., and another for the Palm operating system, called PalmSource Inc.

PalmOne was bolstered at the same time with the acquisition of Handspring, the company behind the Treo line of smart phones.

PalmOne is a hardware company "and we are a software company," Knook said in that interview. "They would be an interesting partner for us."

The spinoff enabled PalmOne to make devices that use anyone's software, not just PalmSource's.

But devices from the hardware maker -- now again known as Palm Inc. -- until now have continued to use only PalmOS, said Palm Inc. spokesman Ryan Luckin.

Palm Inc.'s software powered the first popular hand-held device, the Pilot, released in 1996.

PalmOS became the most popular operating system for such devices, by May 2001 attracting 140,000 developers, who created 10,000 programs that ran on Palm devices, according to the company.

At the end of June, PalmOS held 3.7 percent of the worldwide market for use on personal digital assistants and smart phones, according to Gartner. Microsoft Windows Mobile held 4.8 percent.

Operating systems control a computerized device's most basic functions, strongly affecting how reliably they perform.

P-I reporter Todd Bishop contributed to this report, which includes material from Bloomberg News and The Associated Press. P-I reporter Dan Richman can be reached at 206-448-8032 or danrichman@seattlepi.com.

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