Palm has unveiled a version of its Treo smartphone running Windows Mobile. 

At a media event in San Francisco, Palm chief executive Ed Colligan joined Microsoft's Bill Gates and Verizon Wireless' Denny Strigl to demonstrate the new device that is set to start shipping in the US early next year.

The unveiling coincided with the Cellular Telecommunications Industry Association Wireless tradeshow that kicked off in San Francisco today. 

The switch marks the first time that Palm has released a device that runs an operating system other than Palm OS. 

Palm has been fiercely competing with Microsoft in the space for mobile devices, both smartphones and PDAs. But in recent years it has opened the door to additional operating systems with the spin off of the Palm OS software into PalmSource.

"In this business, partners sometimes compete and competitors sometimes partner," said Colligan.

The Palm chief touted the uniqueness of the level of integration of Windows Mobile with Microsoft Exchange and Outlook in delivering email, as well as the rich multimedia capabilities of the operating system.

Colligan expects the new device to help Palm reach new users within the enterprise and further increase the sales of Treo smartphones.

"We will reach into many new businesses and enterprises which standardise on Windows technology and where [Windows support] is a fundamental part of what they are looking for," he said.

Palm sold almost half a million smartphones in its most recent quarter, but according to most analysts the device is trailing behind RIM's Bl ackBerry.

The new Treo remains unnamed until the actual launch early next year. Palm declined to provide many technical details other than that the smartphone runs on an Intel processor and has a built in EVDO radio. 

The inclusion of the additional radio will slightly increase its price over current Treo models, which cost upwards of $450, depending on the wireless contract.

The EVDO 3G wireless technology is used mostly in the US, while most of Europe and Asia have standardised on UMTS. Colligan said that he hoped to start shipping a UMTS version of the new Treo after the middle of the next year.

Palm's switch is also a major victory for Microsoft, which has been struggling to get device makers to sign up for the mobile version of Windows.

Gates admitted that the company has been trailing behind Palm on some fronts. "We lusted after some of the things that they did well," he said during the Windows Treo's unveiling.

At the same time he predicted that the move would open up a large new market for Palm, Microsoft and Verizon. Of today's 130 million Exchange users, only 15 million have some type of mobile email, according to Gates.

"As we move from that low penetration, there are a lot of devices to be sold, a lot of network capability to be used," he said.

Palm has leaned heavily on the Palm OS operating system in the past, of which it was by far the largest licensee. The company will keep making Palm OS based Treos, but the move to Windows will make it harder for Palm to differentiate itself from other smartphone makers.

Palm, however, has added several features to the Windows Treo, including a dial-by-name feature that allows the user to quickly find a contact in the address book.

"This is about our ability to differentiate, to do things that are unique on the platform. If that's something that we can't do, we deserve to be a commodity," said Colligan.