With the purchase of its competitor Handspring, Palm has a smartphone worthy of the name and ready for an autumn launch

It's not often that a company introduces a product a fortnight after said company announced it would soon be vanishing from the face of the earth. But that's what Jeff Hawkins, chief executive of Handspring, managed this week, when he premiered the Treo 600, Handspring's new combined PDA (pocket organiser) and mobile phone.

The Treo should hit the shops in the US in autumn, around the time that his company is due to be swallowed up by its main competitor, Palm, in a merger announced on June 4th.

The Treo's future should be safe: it is widely assumed that Palm's primary intention in buying Handspring, for around $170 million (€144 million) was to obtain the Treo smartphone line. The more pressing question is: what of Palm's future?

For five years, Handspring and Palm were curious competitors in the US PDA market - if they could be called competitors at all.

Handspring was formed when the core team behind the original development of the Palm Pilot left Palm to form their own company.

At the time of Handspring's launch in 1998, it was clear that Palm was set to be king of the industry but many felt Handspring had made off with its crown jewels. Its key executives were Jeff Hawkins, Donna Dubinsky and Ed Colligan - the inventor of the Palm, the creator of the company and the chief marketeer, respectively.

Thereafter, Palm had the goods, brand name and investment but Handspring had all the initiative.

Handspring prospered by nipping its designs into market niches that Palm hadn't noticed. It produced cheap Palm-compatibles that aimed at the less-than-$200 low-end market (until Palm brought out cheaper models), PDAs that permitted add-ons to be plugged into the top (until Palm brought out an expandible model) and, lately, ducked into the mobile phones market (until Palm brought out a combined PDA and phone, earlier this year).

Despite the competitiveness, the two were still strongly linked: Handspring licensed its machines' operating system (OS) from Palm and carefully avoided antagonising its supposed competitor too much.

Even before the merger, one got the feeling that Palm and Handspring rather appreciated one another's company in the marketplace. The only other figure in the personal organiser marketplace at that stage was Microsoft - to be the only target in Microsoft's sight is a very lonely place to be.

Times have changed. Both Palm and Handspring have more or less survived a full frontal attack by Microsoft. Its PocketPC platform now owns 25 per cent of the personal organiser market compared with the combined 55 per cent of Palm-driven machines.

But the days of scrapping with Microsoft while scavenging untapped veins within the PDA market are over. The traditional sector is no longer growing as fast as it once did (first-quarter shipments of organisers fell 21 per cent compared to this time last year). Almost everyone who wants a bare-bones PDA in the US has, it seems, already got one.

And with heavy competition to introduce new features in the high-end market, the pricier PDAs have somehow found themselves bucking the computer industry's most hallowed trend, and are getting more expensive - increasing profits but diminishing sales.

That was the reason why Handspring began the sideways shuffle into the world of mobile phones. There's plenty of growth in that sector, especially in the still under- achieving US market.

Unfortunately, there's also a great deal more competition.

Old and grizzled mobile phone experts such as Nokia, Motorola and Ericsson have been slowly adding intelligence to their units for years (see Net Results below). Their models expanded to become general-purpose organisers around the time that Handspring and, indeed, Microsoft were turning their organisers into phones.

The collegial battling between Palm and Handspring has nothing on this.

One Handspring executive I spoke to at the time of the original Treo launch mentioned, lightly, that the product was designed more to "teach us how to make a phone" than actually be a fully functional product in its own right.

In this new market, Handspring was too small a company to experiment with its range.

The mobile phone giants, by contrast, can afford many such duds before they hit on a successful formula. Nokia alone spends $3 billion and employs 20,000 people in its R&D department.

When the Treo only managed to ship 200,000 units in its first 18 months of existence - leading to a 50 per cent annual drop in Handspring's sales, the company found itself hit with a death blow.

Meanwhile, Palm's lack of knowledge of the mobile phone arena was beginning to hurt its prospects, if not in the market then among investors.

Palm's own tardy foray earlier this year into the wireless phone market, the Tungsten W, proved to be more of a personal organiser with a headphone hanging off the back. And while other companies had licensed Palm's OS to use within a mobile phone form - including Kyocera, Samsung and, at one point, even Nokia and Motorola - that doesn't do Palm much good.

The company is planning to sell off its OS licensing wing later this year. It can't, therefore, depend on its Palm OS licensees to provide it with mobile telephony income.

With the purchase of Handspring, Palm at least has a smartphone worthy of the name ready for an autumn launch. But its next phone product will surely be its last chance to break into this market.

Products such as the high-powered, hot-synching, Java-enabled, Nokia 6600, appearing at the same time, encroach more and more into the home PDA space - and will be heavily subsidised by mobile networks to boot.

With its old team back at the helm, steady sales and a sizeable cash store, Palm appears to be preparing for the fight. But you have to pity any company that must be looking back on battling its kid brother and a stumbling Microsoft with a glow of nostalgia.