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PalmSource to buy into China, Linux

update The firm will acquire ChinaMobile, a software maker that's been developing a version of Linux for mobile devices.

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update PalmSource, which makes software for mobile devices, said Wednesday that it has agreed to acquire China MobileSoft in a deal expected to expand the company's global presence and put Linux applications squarely in its product plans.

Based in the city of Nanjing, China MobileSoft makes software for use in wireless phones and has also been developing a version of Linux for use in mobile devices. PalmSource contends that the purchase will not only give it a base of operations in China, but will also allow it to extend its product line into the Linux market.

Executives at PalmSource said the company will create a Linux-based version of its Palm operating system in hopes of tapping into the demand for such applications from the rapidly expanding mobile device market. The company cited research that estimates that by 2008, the worldwide mobile device market will be shipping more than 800 million units annually, with 250 million of those units being so-called smart phones.

"This is the next stage in our growth and a major milestone for the mobile phone industry," David Nagel, chief executive of PalmSource, said in a statement. "We believe the combination of PalmSource, CMS and Linux gives us the technological and market critical mass to compete with even the biggest proprietary operating system companies."

PalmSource representatives said CMS has approximately 160 employees, including 150 software engineers, all of whom it expects to remain with the company after the deal has closed. The company did not indicate how many of those engineers were involved in development of Linux products. PalmSource officials also cited the Nanjing region as an academic stronghold in China, where it hopes to find additional engineering talent.

Under terms of the deal, PalmSource will issue 1.57 million shares of its stock in exchange for the outstanding stock of China MobileSoft. While the acquisition remains subject to approval by China MobileSoft's shareholders, the companies said they expect the deal to close before the end of February. PalmSource shares were trading at just over $14.25 early Wednesday.

Going open-source
Amid the CMS acquisition announcement, PalmSource also unveiled plans for Palm OS for Linux, its upcoming open-source operating system for use in mobile devices. The company said it plans to offer future versions of its Palm OS Cobalt as a software layer on top of Linux--specifically, on the Linux kernel and selected Linux services appropriate to mobile devices. However, PalmSource repeatedly voiced its intent not to distribute the source code for its commercial products to the public.

In an e-mail to CNET News.com, Mike Kelley, vice president of engineering at PalmSource, offered further details on his company's Linux plans, including its intentions to become an active member of the open-source community.

"We will definitely be a contributor to the Linux community," Kelley wrote. "Our most relevant experience is in tuning an operating system to be very efficient for mobile devices such as phones, (and) I expect we will be doing work there and working with the Linux community to see if it can be incorporated. There may be other areas where we can contribute, (and) I look forward to finding out (more)."

Though Kelley repeated that PalmSource has no plans to release the programming code for the Palm OS, he highlighted the fact that the company does participate in additional open-source projects in other areas, such as its work with the Eclipse software development project.

Open-source experts observed that PalmSource appears sincere in its efforts to interact with the Linux community. Open-source guru Bruce Perens, the creator of the Open Source Definition, said he expects the company to share the bulk of its development with the general public.

"At the very least some modification to Linux will be necessary to make the kernel run on (PalmSource's) hardware partners' platforms," said Perens. "Since the Linux kernel is under the (General Public License), PalmSource would have to make their modification source code public in a form that other people could use. But they will probably go farther than this. They are announcing their intention to be our partner, rather than just our user."

PalmSource officials confirmed plans to submit anything the company adds to Linux under the GPL.

Putting out its best China
PalmSource has had its own operations in place in China since 2002, but the company expects that having a locally established division in place will allow it to compete more aggressively against its larger competitors in the mobile device software space, namely Symbian and Microsoft. The company said it plans to continue to operate its existing offices in Beijing and Hong Kong after the CMS deal has closed.

Thus far, PalmSource has introduced localized versions of its existing products on the Chinese market, along with garnering several licensing agreements with PDA and handset vendors. Most notably, the company has a PDA software licensing deal in place with Lenovo, the China-based company that announced a $1.75 billion acquisition of IBM's personal computer business on Tuesday. PalmSource also has a similar deal with GSPDA, which is headquartered in Hong Kong, to supply operating system software to that company's wireless handsets.

According to company officials, CMS has roughly 20 different device makers licensing its software into 30 different handsets already, which made the acquisition even more attractive. David Limp, senior vice president of corporate and business development at PalmSource, estimates that China could presently have well more than 100 different phone manufacturers and said PalmSource should be able to kick start sales of its own products through CMS' local connections.

"As a rule of thumb, when you try to go to Japan or China without a local presence, you're never going to get significant momentum, so there's obviously a big advantage with improving all that with this deal," Limp said. "Our strategy was to go after the biggest licensees because the Chinese market had too many customers to take a broad brush approach. It's hard to scale to that level of opportunity organically, but now we'll be able to service customers locally, and that's huge."

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