Handhelds hold hands

Speculation of a merger between handheld device makers Palm and Handspring has led to a rise in both companies' shares.

While Palm shares rose 44 cents, or about 12 per cent, to $3.87 and Handspring shares rose $1.41, or 35 per cent, to $5.41 on Monday following the news of a possible deal, they both retreated a little on Tuesday in the general market downturn.

Palm closed at $3.45 and Handspring at $5.15. The stocks, which track each other closely, have plunged more than 90 per cent this year.

The merger speculation was denied by Handspring and follows the recent departure of Palm chief executive Carl Yankowski. Analysts said Yankowski's leaving might be a catalyst to get the combination going.

A merger would allow the two companies to launch a combined attack on Microsoft, which has been vigorously pushing its Pocket PC handheld device and has reduced Palm's market share to about 80 per cent, down from 89 per cent last year.

In a recent report, Charles Wolf, an analyst at Needham & Company, said a merger of the two could lead "to significant savings in marketing a single brand and in eliminating duplicative research and development expenditures".

While both Palm and Handspring saw explosive growth last year, the pair have been fighting the slowing technology sector as well as competing for the same customers.

The history of the two companies, which rely on the Palm operating system, is intertwined as Palm was co-founded by Jeff Hawkins, who left the company in 1998 to launch and run Handspring.