Palm & Handspring: Will They, Won't They?

Rumors of a merger between handheld manufacturer Palm Inc. (Nasdaq: PALM) and its licensee Handspring Inc. have been bubbling for nearly a year now, and the companies don't even have a joint marketing agreement to show for it.

Unstrung has heard from sources that that the two firms may have already tried -- and failed -- to link (ahem) Palms. But that may not stop them from trying again.

One industry watcher, who wished to remain nameless, says he's heard that Credit Suisse First Boston Corp. has been trying to broker a deal between the two PDA pontiffs. However, recent talks fell through because they were nixed by Handspring's CEO Donna Dubinsky.

"Her [Dubinsky's] biggest fear is working for a larger organization… She wants to remain in control," says another source familiar with some of what is going on at the two companies, "[although] she could be a strong leader at Palm," he notes.

Of course, if Dubinsky were to become a leader at Palm she would have to deal with the increasingly ornate corporate structure at the company, which now has an overall comptroller as well as software and hardware chiefs.

Jeff Hawkins, Handspring's chairman and chief product officer, widely regarded as the "father" of the handheld industry, would be unlikely to have much involvement in any merger talks, a source told Unstrung, because he's wrapped up in his voluntary work. "It's an ego thing," the source says.

Original Palm founders Dubinsky and Hawkins left the company after kickstarting the so-called "Palm economy." At the time, they expressed frustration with the firm's parent company 3Com Corp.. Then they launched Handspring. Palm was eventually spun off as an IPO in March of 2000, and Handspring shortly followed with an IPO in June of 2000. So, it may not be surprising that the two original Palm founders are reluctant to return to the fold with their former company.

Yet, it’s a seductive idea for many in the industry, who say that combining Palm's still-strong brand name with Handspring's increasing expertise in wireless design could pay dividends. "There's a lot of synergy there," says Ray Sharma, wireless technology analyst at BMO Nesbitt Burns Inc.

And merging two of the larger companies in the industry could ease price competition and make the space more comfortable for the whole market. "We think consolidation would be good for the industry," Sharma says.

It's not impossible that talks could still be going on behind the scenes. One source notes that Donna Dubinsky and Todd Bradley, head of Palm's hardware company, are both going to be at the Comdex Canada tradeshow next week. It is highly unusual for both of those personalities to be at the same tradeshow, let alone one as small as Comdex Canada, the source says, wondering if the two are there to do more than just present their latest solutions to a crowd of jaded engineers and journos.

Handspring refused to comment on what it described as "rumors and speculation."

— Dan Jones, Senior Editor, Unstrung
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