Palm pins hopes on beefed-up OS

The company announced Monday that the unit responsible for creating and licensing the operating system has shipped Palm OS 5 to its developers. As earlier reported, the new operating system is designed to pave the way for hardware makers to create Palm OS handhelds using more powerful processors based on chip designs from England's ARM. The OS also adds improved security, sound and networking features.

The release of OS 5 is positive news for Palm, which warned 10 days ago that sales would fall well short of expectations for the quarter that just ended and the current quarter, which runs through the end of August.

"The market is soft," said David Nagel, CEO of PalmSource, the operating-system subsidiary of Palm. Palm plans to fully separate the OS business from its hardware operation later this year.

Monday morning, Palm shares got a boost from the news, rising 23 cents, or almost 20 percent, to $1.45.

With demand likely to remain sluggish at least through the summer, both the OS unit and the hardware group are counting on OS 5 and new products based on the operating system to help spur demand. Palm has already said it will come out with a wireless handheld this fall that is similar to an m505 but runs the new OS and is capable of making cell phone calls and receiving data wirelessly.

With the move to ARM, handhelds running Palm OS 5 will be equipped with the same types of chips that have powered devices running Microsoft's rival Pocket PC. However, Palm applications that completely harness the power of the new chips aren't likely to crop up in large numbers anytime soon. It will take about a year for the new ARM-based handhelds to fully supplant those running the older DragonBall chips in the product lineups at Palm and others.

"At that point you'll start to see development of ARM-based applications," Nagel said. "We're not doing much to encourage them to do that at this point."

For the time being, Palm is focusing on keeping compatibility with its current programs and maintaining the ease of use that has been the hallmark of the Palm operating system.

"I still think that (ease of use) is the reason that people buy our products," Nagel said.

Not all programs will run on the new OS, but Palm has said it hopes that about 80 percent of older programs will.

Sony, which has been pushing the limits of the Palm OS and the DragonBall most aggressively, praised the new operating system.

"We are very excited by the impending release of Palm OS 5," Sony handheld unit President Masanobu Yoshida, said in a statement. "We will continue to contribute to the Palm camp, with this powerful OS 5, working together with PalmSource and the Palm developer community."

Microsoft Product Manager Ed Suwanjindar said OS 5 could pave the way for more powerful Palm-based handhelds, but said the new features it enables are already part of the Pocket PC operating system.

"We'll start worrying when they start innovating," Suwanjindar said. "There isn't anything in there that we haven't provided for one, or in some cases two, releases."

Suwanjindar added that the move to ARM-based processors will force makers of Palm-based handhelds to start using more expensive chips and screens, potentially removing the cost difference between Palm-based handhelds and those using Pocket PC.

Palm first announced its intent to migrate the operating system to ARM-based chips more than two years ago.

At the time, Palms were in short supply and analysts predicted huge growth in the industry. Instead, the market declined, along with the stock price of Palm and Handspring.

Separately, Palm also announced Monday that it is adding upstart graphics chipmaker MediaQ to its program that qualifies chips for use with the Palm operating system.