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Though stopping short of splitting the company, Palm Inc. has announced it will separate its operating system and handheld PC businesses, forming a wholly owned subsidiary -- the Platform Solutions Group -- to develop the Palm OS and license it to PDA vendors -- currently including Handspring, Sony, and HandEra as well as Palm -- the Solutions Group.

After completing the church-and-state split, due by the end of this year, Palm says it will also launch an advisory council of Palm OS licensees to consult and communicate with the Platform Group.

Though the two Palms will share "infrastructure and staff services," the company hopes to demonstrate that its own PDA business will have no inside track or unfair advantage over Palm OS licensees -- which, in addition to the handheld manufacturers already mentioned, include smart-phone vendors Kyocera and Samsung and GPS navigation specialist Garmin.

Palm says its platform is used in 76 to 88 percent of all personal digital assistants, depending on which market research firm you ask, and that there are over 170,000 registered Palm OS applications developers. In addition, this week Palm announced plans to support its operating system on Intel, ARM, and Texas Instruments processors as well as the Motorola Dragonball family that's powered all existing Palm, Handspring, and Sony Clie PDAs.

Nevertheless, Palm faces a surging challenger in Microsoft's Pocket PC platform, as well as a nascent Linux movement. Compaq Computer Corp. says its iPaq Pocket PC overcame past shortages to ship nearly half a million units in the second quarter, claiming a commanding lead in the Windows CE market, and projects that the iPaq overtook Palm in terms of revenue for the quarter.

Compaq is also assuring shoppers that iPaqs purchased today will be upgradeable to future versions of Windows CE/Pocket PC, touting such future-proofing as unique to the iPaq.

Eric Grevstad is the managing editor of HardwareCentral.