SANTA CLARA, Calif. -- A year ago, investors were losing faith in Palm Inc. The once high-flying company itself admitted to frailty and mistakes.
But Palm never gave up, and launches Monday a new operating system - a crucial weapon in its battle to remain dominant in the competitive handheld market.
Palm OS 5, analysts say, is a much-needed major upgrade from the pioneer of personal digital assistants' earlier operating systems.
"Those were escalator steps. OS 5 is like raising the escalator another whole floor," said Richard Doherty, director of research for The Envisioneering Group, which tracks technology developments for investors.
The big leap is that OS 5 runs on more powerful ARM microprocessors, which rival what is used by Microsoft Pocket PC devices.
The OS 5 platform is designed to be faster and more secure, and can accommodate richer audio and graphics. Multimedia users will be able to play back and record digital audio using higher-resolution screens.
The new OS also expands built-in support for wireless networking - considered the future direction of all mobile computer devices - and should help improve connection speeds.
Palm claims OS 5 adds performance without using more battery power, or raising prices much. The next generation of Palm devices should begin appearing in stores this summer.
"This is just the beginning of a very aggressive roadmap - a new era of innovation for the platform," said Dave Nagel, chief executive of PalmSource, the operating system subsidiary Palm plans to spin off by year's end. "Now we could do things that would have been impossible or a lousy user experience before."
Financially, the new operating system could boost Palm's revenues by broadening its base of licensees and inviting more compelling software applications that in turn could attract new consumers.
Palm suffered major setbacks last year from the economic downtown and its own operational missteps. Its stock price has tumbled 80 percent from a year ago. The company is pushing to return to profitability this year, and predicts a rebound in sales this fall, Needham & Company Inc. analyst Charles Wolf said in a recent report.
Cutting Edge Software Inc., maker of the first spreadsheet program for Palm OS devices, has anxiously waited for the more robust platform, which can run existing applications up to 20 times faster.
For instance, pie charts that typically took 20 seconds to complete are done in a second or two on OS 5, said Mike Compeau, Cutting Edge's vice president of business development and product planning.
More importantly, he said, Cutting Edge - and, Palm hopes, other developers - will now look to create more advanced handheld applications.
Cutting Edge's first product designed to take advantage of OS 5 will allow two users of wireless-enabled PDAs to view and work on the same document at the same time. Even if they are miles apart, as long as they are connected to the same server via the Internet, "changes will be captured in real time, as if the participants were leaning over each others' shoulders," Compeau said.
Because OS 5 also allows multiple programs to run simultaneously, Cutting Edge envisions a conferencing product that will allow a PDA user to be in a chat window, keep a voice connection going and deliver a document to other participants - all at once.
"That's what we want to do, and with the ARM-based processor and OS 5, it makes it far more conceivable to do," Compeau said.
Sony Corp., whose CLIE handhelds use the Palm operating system, had already built many audio and graphic capabilities on top of earlier Palm OS versions to create its entertainment-oriented and high-resolution organizers.
But the OS 5, coupled with an ARM processor, "will help take us to the next level with a smoother video player and higher-quality images," said David Yang, a Sony spokesman.
Many features of OS 5 help Palm catch up to Microsoft's Pocket PCs, which have allowed the Redmond, Wash.-based software titan to chip away at Palm's market share.
Palm OS devices, which include PDAs from Palm, Handspring and Sony, and smartphones from Samsung and Kyocera, comprised about 53 percent of worldwide handheld device shipments in 2001, according to market researcher International Data Corp.
That was down from 66.5 percent in 2000, and IDC predicts the downward trend will continue with Palm OS devices making up less than 42 percent of the market share by 2006.
Meanwhile, IDC predicts Microsoft's Pocket PC, the operating system used in iPAQs and other handhelds by Toshiba and Casio, will steadily rise to account for nearly 35 percent of the handheld market in 2006 - up from about 17 percent in 2000. The remaining market share is split between Linux, Symbian and other operating systems.
Analysts say Palm sorely needs the platform overhaul - considered by many to be Palm's first major innovation after nearly two years of stagnation.
"It's a necessary thing for them to do," said James Faucette, a financial analyst with Pacific Crest Securities. "It could help them, and it better help them."
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