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Cell phone maker shakes hands with Palm

Japan's Kyocera will add the popular operating system to its high-end phones, another sign that wireless communications is the new battleground for device makers.

Cell phone maker Kyocera today said that it will incorporate Palm software into its high-end phones, another sign that wireless communications is the new battleground for device makers.

Today's announcement comes one day after Palm licensee Handspring confirmed that by the end of the year it will release the VisorPhone, an add-on cartridge that turns its Visor personal digital assistant (PDA) into a cell phone.

High-end phones such as Kyocera's are being dubbed smart phones because they offer wireless Internet access and some organizing features already found on PDAs.

The deal between Japan's Kyocera and Palm is essentially an extension of an earlier partnership Palm struck with Qualcomm. Last year, Qualcomm sold its handset business to Kyocera. That included the pdQ, the hybrid PDA-cell phone jointly developed by Qualcomm and Palm.

By the end of the year, Kyocera plans to release its Palm Powered cell phones that run on the Palm operating system. Kyocera will continue to make the pdQ phone originally developed by Qualcomm.

Although Palm's OS is associated with PDAs, it can also be used to run other devices such as cell phones.

Recognizing that there is a finite audience for its core business of PDAs, Palm has revamped itself in the past year to beef up its wireless Internet service and partnerships. The handheld maker has focused on licensing its operating system to cell phone makers, such as Nokia, and other device makers, such as Sony and Handspring.

Neither Nokia nor Motorola, another Palm licensee, has released any product based on Palm's operating system yet.

Many analysts believe that during the next several years, cell phones will increasingly take on the features of handheld computers, and the line between the two products will blur. Already, most cell phones offer limited address book and calendar functions.

Handspring's new product, for example, will integrate these applications even further, allowing VisorPhone users to call people directly from their PDA address books. Although not designed specifically for Internet access, the VisorPhone will also have the capabilities of a wireless modem and will allow Visor users to surf the Web.

"Both Palm and (Handspring) appear to be moving aggressively into the converged voice and data arena," William Crawford, an analyst with Merrill Lynch, said in a report today.

"We think both Palm and (Handspring's) announcements show that data companies can quickly add voice, particularly with respect to (Handspring's) announcement, faster than the voice companies have added data so far."

Still, high-end cell phones that include PDA features and wireless Internet access appeal only to a niche market so far, according to International Data Corp. About 1 million of these smart phones shipped in 1999, according to IDC, although that figure is expected to grow to 10 million units in 2003.

"Although this agreement represents a transfer of the original Qualcomm licensing agreement with Palm, we think this is a positive for Palm, as the Palm platform continues to gain momentum," Morgan Stanley analyst Gillian Munson said in a note to investors today.

"At the same time, we believe it is important to remember that the smart phone market is a young market and remains at the high echelon of the mobile phone market," she added.

With its Palm VII line of products, Palm has been at the forefront of offering wireless Internet access, although the devices have been criticized for slow connections and an unwieldy interface. Handhelds from Casio, Hewlett-Packard and Compaq Computer, based on Microsoft's Pocket PC operating system, offer some wireless access through add-on products.

Palm reports third-quarter earnings next Monday. Merrill Lynch's Munson expects quarterly revenue of $385 million.