Palm Grabs Handspring

The merger of Palm Inc. and Handspring Inc. may appease wireless service operators, but industry experts and handheld customers say the combined company will lack a critical offering: enterprise applications.

Palm last week announced plans to acquire rival Handspring in a stock deal worth about $169 million, citing Handsprings line of Treo smart phones and its relationships with several wireless carriers. When the deal closes in the fall, Palm will have three handheld lines: Zire for consumers, Tungsten for the enterprise and Treo for carriers that want to resell smart phones.

Palm, of Milpitas, Calif., also announced final approval for the spinoff of its PalmSource software and operating system division, meaning the new, merged company will be strictly hardware. This concerns some IT managers.

“Handspring perfectly demonstrated that hardware-only is a dangerous path,” said Christopher Bell, a handheld user and chief technology officer of People2People Group Inc., in Boston. “They have consistently produced highly regarded products and still couldnt generate the cash flow to survive. Compare that to Palms repeated strategic errors, and its difficult to see how this can end well.”

Palm has a poor track record in enterprise software and company acquisitions. In 2001, the company announced it would buy Extended Systems Inc., but the deal fell through. Palm then bought the more affordable ThinAirApps Inc., announcing plans to turn ThinAirs server software into Palm-branded middleware for the Tungsten line of handheld computers. But Palm nixed plans for the middleware, dubbed Tungsten MIMS (Mobile Information Management Server), earlier this year.

“The current leadership at Palm is focusing on the hardware business,” said Bob Pascazio, formerly a lead software developer at ThinAirApps. Pascazio started New York-based DeviceIQ Inc. this year when Palm dismantled its enterprise software team. “Handspring attempts to support enterprise customers with a nonpush e-mail solution on their communicators.”

Palm executives have said the company plans to appease carriers and enterprise customers through third-party software deals.

To that end, Palm this week at the JavaOne show in San Francisco will announce plans to incorporate and ship IBMs Java-based WebSphere Micro Environment with Palms Tungsten handheld devices. Palm and IBM will also collaborate on IBMs WebSphere Studio Device Developer tools, officials said.

In addition to the smart phones, Palm regains its founders in the Handspring deal. Handspring executives Jeff Hawkins and Donna Dubinsky founded Palm in 1992, following Hawkins invention of Palm OS, the Graffiti handwriting recognition language and the first Palm handheld device. In 1996, U.S. Robotics Corp. bought Palm, and in 1997, 3Com Corp. bought U.S. Robotics. In 1998, Hawkins and Dubinsky left Palm to form Handspring, which competed with Palm. Dubinsky will sit on the board of the new company but will not have a management position. Hawkins will become CTO. Still, Hawkins made it clear that the merger is not a homecoming.

“Palm has changed a lot since I left five years ago,” Hawkins said during a conference call last week. “This is not a reunion for me, and there is no nostalgia.”