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Looming Palm takeover could hinder Apple

Recent indications that Treo maker Palm Inc. may be acquired by one of its rivals have the potential to reshape the entire cellphone market, and could have their own ramifications for Apple's still unreleased handset.

Wireless industry website Unstrung broke rank with its peers on Monday and claimed to have reliable knowledge of an impending buyout of Palm, known best for the original PalmPilot and its Treo smartphones.

Although the frontrunner wasn't mentioned, site editor Dan Jones characterized the potential acquisition as a frenzied, four-way competition for the device maker. Two private equity groups are involved, Jones said, but the most significant potential buyers are likely to be two of the company's greatest rivals, Motorola and Nokia.

While either company winning the bid could have a major impact, a successful takeover by Motorola could revolutionize the cellphone industry — and threaten Apple by extension, the source said.

Palm has been both a blessing and a curse to both Microsoft and its Windows Mobile OS, alternately competing with and supporting Microsoft with different versions of the Treo. A Motorola purchase of Palm would make the latter the single largest supplier of Windows Mobile devices and could lock Nokia out of much of the North American smartphone business. This would whittle the number of competitors in the market down to three in 2007 and make Apple an obvious target.

"If they own Palm, all of a sudden Motorola becomes Microsoft's best hope for competing against RIM and Apple," the informant reported.

Such a shift could cause problems for the iPhone if it were to take place, based on earlier analyst reports. Financial institution Morgan Stanley recently singled out Motorola and Palm as respectively irrelevant and vulnerable to the Apple device but had not factored in the possibility of a merger that strengthened the position of either rival.

That investment same bank is said to be brokering the deal on behalf of Palm and may provide an answer to questions as soon as Thursday, when it hopes to finalize the buyout and possibly deliver the news as part of the phone manufacturer's fiscal third-quarter 2007 report.