http://www.forbes.com/afxnewslimited/feeds/afx/2005/09/23/afx2242305.html 09.23.2005, 10:41 PM SAN FRANCISCO (AFX) - Palm Inc is expected to unveil on Monday an updated version of its Treo product that combines a mobile phone with a digital organizer, according to a person familiar with the company's plans. The new offering, long-expected, is designed to help Palm keep pace with rival Research In Motion Ltd's popular Blackberry devices. Palm shares rose more than 4 pct in late trading on the news, while RIM shares lost almost 2 pct. The Treo will use a version of Microsoft's Windows operating system - despite a long and bitter rivalry between the two firms -- and work with a new high-speed wireless service offered by Verizon Communications Inc, said the source, who requested anonymity. Palm, which pioneered the market for pocket-sized electronic organizers in the late 1990's, has faced increased competition in recent years from RIM and other makers for all-in-one consumer products that can track appointments and addresses, make phone calls and send and receive email. The company's shares plunged 18 pct Friday after Palm reported disappointing sales of its personal digital assistants and issued a revenue forecast for the current quarter that was lower than Wall Street expected. 'It's clear that Palm has been losing ground to RIM,' said Roger Kay, president of Endpoint Technologies Associates, a technology research firm based in Concord, Mass. 'The Blackberry has been setting the pace,' with features that are especially popular with business travelers, Kay said. On Thursday, Palm said its first-quarter profit fell 7 pct to 18.2 mln usd, even though sales rose 25 pct. The company also said it expects to post second-quarter revenue of 435-440 mln usd, a range that falls below analysts' consensus estimates. The product is expected to be shown at an event in San Francisco Monday attended by Microsoft Chairman Bill Gates, Palm Chief Executive Ed Colligan and Verizon Wireless Chief Executive Denny Strigl. Analysts expect the new Treo will be available early next year. 'We expect a version...no later than the first calendar quarter of 2006,' according to a note written by Needham & Co analyst Charles R. Wolf. The device will access Verizon's cellular network using updated technology that sends data over wireless links at broadband speeds. It will compete with the Blackberry device available from Verizon rival T-Mobile USA Inc, a unit of Deutsche Telekom. For Microsoft, the partnership with Palm is a move to protect its lucrative Office suite of software applications that include programs such as e-mail and word processing, said Bruce Richardson, an analyst with AMR Research. While the partnership will be a first between the world's largest software company and Palm, Richardson said it is unlikely Microsoft will feel itself wedded to the handheld device maker. 'Microsoft is hedging its bets on what the device of the future is going to be,' Richardson said.'The laptop of the future is going to be a cell phone and, obviously, Microsoft is continuing to put up as much barbwire and reinforcement around the Office franchise as possible.' One potential downside for Palm in linking up with Microsoft, according to Richardson, is the possibility that the device's software could become the target of hackers. The Windows operating system, which runs most of the world's PC's, is often attacked by programmers who write computer viruses and other malicious software. Previous versions of Palm's products have run on software developed by Palmsource Inc, the software firm that, like Palm Inc, was formerly a unit of Palm Computing.