PalmSource to Extend Leadership in Phone Software With Acquisition of China MobileSoft

SUNNYVALE, Calif., Dec. 8 /PRNewswire-FirstCall/ -- PalmSource, Inc. (Nasdaq: PSRC), provider of Palm OS(R), a leading operating system powering next generation mobile devices and smartphones today announced entry into an agreement for the acquisition of China MobileSoft Limited (CMS), a leading Chinese mobile phone software company with business operations headquartered with its wholly-owned subsidiary, MobileSoft Technology (Nanjing), in China. Pursuant to the agreement, PalmSource would issue approximately 1,570,000 shares of PalmSource common stock in exchange for the outstanding equity and rights to acquire equity in CMS. The transaction is subject to certain conditions, including CMS shareholder approval. The transaction is anticipated to close before the end of PalmSource's third fiscal quarter, ending February 28, 2005.

The acquisition of CMS is expected to further extend PalmSource's leadership as a software provider for phones and mobile devices worldwide. The combination of Palm OS and CMS's software products will give PalmSource one of the broadest line of mobile software in the industry, powering mobile phones at all price points in all regions of the world.

"This is the next stage in our growth and a major milestone for the mobile phone industry. We plan to offer the ease-of-use and flexibility that Palm OS(R) is known for to all mobile phones," said David Nagel, president and CEO of PalmSource, Inc. "We believe the combination of PalmSource, CMS and Linux gives us the technological and market critical mass to compete with even the biggest proprietary operating system companies."

CMS and its subsidiaries currently offer customers a wide range of software for mobile phones, including more than a dozen phone applications, operating software for smart and feature phones. The company has also been developing a version of Linux optimized for mobile devices. In the future, we plan to give the phone applications and phone software the Palm OS look and feel and data compatibility, extending the Palm OS ease-of-use to all classes of mobile phones worldwide.

"We are very excited about joining PalmSource to create the world's first truly global mobile software company," said Madeline Duva, CEO, China MobileSoft, "We believe the synergies of the Palm OS(R) platform and the CMS software products and technologies open up new market opportunities for both companies worldwide."

PalmSource will continue to offer both Palm OS(R) Garnet and Palm OS(R) Cobalt to support a broad range of mobile devices including smartphones. PalmSource also plans to implement Palm OS on top of Linux, bringing the benefits of Palm OS to the Linux community, including the award winning user interface, software frameworks based on the best of Palm OS and BeOS(R), a large base of professional and consumer applications, and an enthusiastic community of more than 25 million users and over 360,000 registered developers. PalmSource intends to work as a partner within the Linux community to help Linux grow rapidly in the consumer and enterprise mobile markets. What the Linux Community is Saying

"When I think of the Linux desktop of the future, I think of it on my phone; on the embedded devices I spend most of my time with. The only thing that has been missing is the applications, and PalmSource's move into Linux helps to erase that gap," said Matt Asay, director, Linux Business Office, Novell, Inc. "The combination of Palm OS(R) and Linux would appear to make this optimistic view of the 'embedded desktop' a near-term reality. I'm therefore excited by PalmSource's announcement and heartily welcome their contributions to the Linux community."

"The Open Source community welcomes PalmSource and its hardware partners as our partners. The Linux kernel and the tremendous wealth of Open Source libraries and applications are the most powerful infrastructure for the mobile platform. Because of this partnership, the capability of today's most powerful workstations and servers will, tomorrow, live in your pocket," said Bruce Perens, creator of the Open Source Definition and co-founder of the Open Source Initiative. "It may not be clear to everyone just how great a potential is being unveiled today. Because Linux standards will be exposed on Palm OS devices, much of our existing desktop and server software can be moved to the mobile platform just by typing "make" and waiting for the sources to compile. That brings a power to the platform that lacks only a good user-interface, PalmSource's forte, to bring incredible capability to the mobile user. The Open Source community has done this on niche platforms before, but the Palm OS partnership will bring that power to the mass market." Market Potential

With the acquisition of CMS, PalmSource is furthering its investment in, and commitment to, China. It also enables PalmSource to sell into the entire mobile phone market worldwide. Industry analysts estimate that by 2008, the worldwide mobile device market will total more than 800 million units, 250 million of them smartphones, and 540 million of them feature and voice phones. The combined company will be poised to take advantage of this larger opportunity. About CMS and China

CMS applications are now shipping in over 30 phone models in the largest wireless market in the world. With a major R&D center and a sales and marketing team in China, PalmSource will now have direct access to this fast growing market. PalmSource also gains relationships with many of the OEM and ODMs that are developing innovative phones for domestic use and export to the rest of the world. According to market data, China is one of the fastest growing mobile phone markets in the world: -- China now has more wireless phones installed than wired phones*

-- China has over 320 million mobile phone users*

-- Approximately 5.5 million new wireless phone subscribers sign up each

month* About PalmSource

PalmSource, Inc. is the company behind Palm OS(R), a leading operating system powering mobile information devices. Approximately 36 million Palm Powered(TM) handhelds and smartphones have been sold to date worldwide. Industry leaders Aceeca, AlphaSmart, Fossil, Garmin, GSL, Kyocera, Lenovo, palmOne, QTech, Samsung, Sony, Symbol Technologies and Tapwave license Palm OS from PalmSource to create diverse mobile devices that meet unique customer needs. Palm OS has given rise to a large community of users, enterprises, developers and manufacturers, who together make up the Palm Powered(TM) Economy. More information about PalmSource is available at http://www.palmsource.com, http://www.palmsource.co.uk, http://www.palmsource.fr, http://www.palmsource.de and http://www.palmsource.com.cn. NOTE: PalmSource, Palm Powered and Palm OS are trademarks or registered trademarks of PalmSource, Inc. or its affiliate in the United States, France, Germany, Japan, the United Kingdom, and other countries. Linux is a trademark owned by William R. Della Croce, an individual, and previously owned by Linus Torvalds, the originator of the GNU code of the same name. All other brands, product names, company names, trademarks and service marks are the properties of their respective owners. All rights reserved. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, without limitation, statements regarding our agreement to acquire China MobileSoft Limited, our strategy, markets, products, and product roadmap, the market for mobile devices and phones, including smartphone, Linux software and the Linux Open Source community. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include, without limitation, our ability to successfully complete and integrate the acquisition of China MobileSoft Limited; our ability to successfully execute our strategy; our ability to identify and meet end users, operators/carriers and manufacturers requirements; realization of the anticipated growth in the mobile device market, particularly in China, and our ability to benefit from such growth and to do business successfully in China; our ability to deliver new products on schedule and in time to meet market demands, which products are easier to use and that enable operators/carriers, manufacturers and developers to bring products to market faster; our ability to successfully build a future version of Palm OS on Linux and to achieve acceleration in Palm OS(R) innovation and the anticipated critical mass worldwide; our ability to maintain and grow our application developer community and to gain acceptance by the Linux Open Source community; and other risks and uncertainties contained in our public announcements, reports to stockholders and other documents filed with and furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the period ended May 28, 2004 and our Quarterly Report on Form 10-Q for the period ended August 27, 2004. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements. PalmSource will also hold a call for investors on Wednesday, December 8, 2004 at 12:00 p.m. The live webcast of this call can be accessed at PalmSource's web site. * China Daily, November 2004