The Jornada 525 will feature 16MB of memory and a less expensive color screen. HP currently sells the 32MB Jornada 548 for $499. Both units use Hitachi's 133MHz processor.
An HP representative confirmed the planned launch with CNET News.com on Friday but declined to offer more details on the product, which had been briefly mentioned on an HP Web site.
Although the exact price was not available Friday, the unit will likely become the cheapest color handheld that runs on Microsoft's Pocket PC operating system. HP will launch the product at the CeBit trade show next week in Germany.
The new product comes amid a flurry of handheld announcements. Earlier this week, Handspring introduced its slimmer Visor Edge model. On Monday, Palm is expected to introduce two new models with a postage stamp-size Secure Digital expansion slot and version 4.0 of the Palm operating system.
HP's move comes as handhelds using Microsoft's Pocket PC operating system are beginning to drop in price.
"You are going to see us introduce some lower" prices, Microsoft Product Manager Ed Suwanjindar said. "We want to make sure we are adding a wider base of users by moving down in price."
In January, Compaq Computer introduced a $349 black-and-white version of its iPaq handheld, which uses Pocket PC.
However, Suwanjindar said no one should expect Pocket PCs to reach the $149 price of Palm's cheapest handheld, the m100.