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In a sign of consolidation among makers of handheld computer devices, Palm (Quote, Company Info) said it would buy its rival Handspring (Quote, Company Info), a company launched by creators of the first Palm device.

The stock swap deal, valued at an estimated $169 million, comes as Palm faces competition from a growing number of handheld device makers, and as Palm prepares to spin out its wireless software unit, PalmSource. It also provides an exit strategy for Handspring, which has been struggling with a depressed share price, a possible delisting from the Nasdaq, sluggish sales and increasing competition from a new generation of progressive handheld devices coming on the market.

The announcement closes a circle for Handspring CEO Donna Dubinsky and Jeff Hawkins, Handspring's chairman and chief officer, the celebrated duo that launched the original Palm Pilot for the company and later went on to found Handspring.

During a conference call to discuss the deal, company executives said Hawkins would become chief technology officer for the merged company. Dubinsky's role will be to retain a seat on the merged company's board of directors, executives said.

"This is a merger of leaders -- the world's leading maker of handheld computers and a global leader of Palm OS based smartphones," said Todd Bradley, Palm Solutions Group president and chief executive officer, during a conference call.

Palm said the merged company would be led by Bradley, who will continue as president and chief executive officer, and will be structured around two business units: handheld computing solutions, led by Ken Wirt, currently senior vice president, sales and marketing, for Palm Solutions; and smartphone solutions, to be led by Ed Colligan, current president and chief operating officer for Handspring.

By separating the hardware and software division, Palm Solutions Group, the company's hardware unit will consolidate its operations with Handspring.

Handspring's market capitalization has fallen in recent weeks as its trading price has slipped below $1, making it increasingly ripe for a possible acquisition.

For its part, Palm plans to add Handspring's Treo hybrid wireless phone/PDA to its existing Palm line of PDA products. Although Palm is still considered the leader of the PDA sector, the market is slumping as shipments have fallen by more than a fifth in the first quarter of 2003.

Just recently, Hawkin's demonstrated at the Sprint PCS User Conference the next generation Treo 600, which will include Palm OS 5, a thumb-keyboard and a directional pad for one handed operation like the current models,, but unlike the Treo 270 and Treo 300, the Treo 600 is slated to have a SDIO-compatible SD slot and a digital camera of unknown resolution.

It looks to be thinner than the current models also, and won't have the flip-cover design. It will also have a ARM-compatible processor that may be running at 133 MHz, since the unit uses Palm OS 5, and it will have 32 MB of RAM. The unit could have either a 1600 or 1800 mAh (non-removable) lithium ion battery. The device should be available in the Fall.