Palm to create OS subsidiary

Palm Inc. plans to split its business in two, one to focus on hardware, with the other managing the licensing and development of its operating system, the company said Friday.

After months of speculation and comments from company Chief Executive Officer Carl Yankowsky pointing to a possible split, the leading handheld maker is setting its Platform Solutions Group loose as a wholly-owned subsidiary. A committee of Palm board members will oversee the new division, which will focus on its operating system, chaired by David C. Nagel, the company said.

Yankowsky said in a statement the company wants to "foster the independence" of both businesses. Palm said it expects to increase its value on the market as well as serve its licensees better through the split. The separation of its business units is planned for some time by the end of the calendar year.

Palm licenses its operating system software to handheld and smart phone makers such as Handspring Inc., Sony Corp. and Kyocera Corp. The company has about 12 major hardware vendors and chip makers signed on as licensees, and estimates more than 16 million handhelds with its operating system have been shipped to date -- as many as 88 percent of all such devices on the market.

The company estimates that about 95 percent of its revenue comes from the sale of hardware. Recently, however, competitors have stepped onto its turf. Research company Gartner Inc. noted last month that Compaq Computer Corp. is gaining on Palm and could overtake the company as the leading revenue collector from the sale of PDAs (Personal Digital Assistants). While Palm sells more devices, the research firm said, Compaq's Microsoft Corp.-powered iPaq has a higher selling price.

The new division will operate independently from the hardware unit, Palm said, but will continue to borrow staff and services from its parent company.

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