updated 2/10/2004 3:04:44 PM ET 2004-02-10T20:04:44

PalmSource Inc., a maker of operating systems for handheld computers, is shifting gears as the market for so-called smartphones grows and the one for simpler personal digital assistants shrinks.

The company’s new strategy, to focus more on devices that handle both voice and data communications — as rivals Nokia Corp. and Microsoft Corp. have already done — was being unveiled at its developer conference here Tuesday.

“We’ve been a player in this space for a long time, and we’re making it official now that it’s a key market for us,” PalmSource chief executive Dave Nagel said in an interview. “We’re going to go after it with every weapon that we have.”

The Sunnyvale, Calif.-based company makes the Palm operating system and licenses it to makers of digital assistants and their newer smartphone cousins, which combine computing and cell phone functions. PalmSource was spun off last October from the hardware division that makes Palm-branded devices, now called palmOne Inc.

Until Tuesday, PalmSource’s approach would be to stop development of an older operating system as it moved on to an upgrade.

But now, PalmSource says it will adopt a “dual-version strategy,” developing a new operating system aimed for the smartphone market while keeping the older Palm operating system — previously known as Palm OS 5 and being renamed Tuesday as Palm Garnet — available for other gadgets.

“Two versions of the same platform will allow us to go after a broader swath of the market than we could do with either, alone,” Nagel said.

Multitasking, security upgrades
Palm’s newest operating system, called Cobalt, which recently began shipping to device manufacturers, already includes major upgrades for multitasking and security, but will be further improved with telephone features, Nagel said.

PalmSource cannot afford to let the growing smartphone market slip by, analysts say. Sales of handheld computers without phone functions slipped 18 percent in 2003, according to market research firm IDC.

Already, cell phone giant Nokia Corp., with its majority stake in the Symbian phone-operating system, holds about 65 percent of the smartphone market, said IDC analyst Alex Slawsby. (Nokia’s stake in Symbian, a mobile device software consortium, more than doubled to 63 percent after its Monday buyout of Psion PLC’s shares.)

And though IDC found that PalmSource edged Microsoft in 2003 with 14 percent of the smartphone market, compared to Microsoft’s 12 percent, Slawsby expects Microsoft to surge ahead in 2004 because Microsoft has commitments from two of the top three cell phone makers, Motorola Inc. and Samsung Electronics Co.

Smartphone licensees signed on with PalmSource include palmOne’s Treo line, Samsung and Kyocera Corp.

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