A new report by Strand Consult concludes that neither Palm nor Handspring are likely to survive the convergence of mobile phones and Personal Digital Assistants.

Ominously, the researchers conclude that neither Palm nor Handspring has the distribution power necessary for operating in the Smart Phone and Smart Handheld Device (SHD) markets.

Neither of the companies have the financial muscle necessary to compete with Nokia, Ericsson/Sony, Siemens, Motorola, and now also Microsoft.

The PDA value chain and price structure means that products become 30% more expensive at retail level than those shipped through the value chain of the mobile industry.

The market for Smart Handheld Devices is expected to grow rapidly over the next few years, as 2.5G and 3G mobile services become widely available. Making use of these new services will require new terminals.

With almost 10 million units sold in 2000 alone, one would think that PDA producers like Palm and Handspring enjoy a head start in relations to the market for PDA's.

But according to Strand, this is not the case. Both companies are dwarfed by its new competitors - the producers of mobile phones - who in 2000 sold 410 million units. And neither of the two companies has experience operating in the value chain of the mobile industry, they argue.

Even though Microsoft is also to some extent on the outside looking in, the Strand researchers gives the software giant more of a chance in competition with the phone set vendors. The difference between Microsoft on the one hand, and Palm/Handspring on the other, is in the respective customer bases and associated applications.

Microsoft's 2.5G Smart Phone platform may be able to piggyback on Microsoft's existing customer base, which, thanks to its Office, Exchange and Hotmail applications is many times bigger than that of both Palm and Handspring. And, most importantly, the MS Smart Phone platform will offer integration with these very widely distributed applications.

Microsoft may be the dark horse in the SHD race against giants like Nokia, Strand asserts, but, contrary to Palm and Handspring, Microsoft has a fighting chance.

In their view, the convergence of mobile phones and PDAs must also involve media companies, software producers and mobile network operators.