Palm will split its business in two – one focusing on hardware, the other managing the licensing and development of its operating system, the company has revealed.

After months of comments from company CEO Carl Yankowsky alluding to a possible split, the leading handheld maker is setting its Platform Solutions Group loose as a wholly-owned subsidiary. A committee of Palm board members will oversee the new division, which will focus on its Palm Operating System. Chair of the board will be David Nagel, Palm's chairman of the Platform Solutions Group.

Yankowsky said the company wants to "foster the independence" of both businesses. Palm said it expects to increase its value on the market as well as serve its licensees better through the split. The separation of its business units is planned for some time by the end of the calendar year.

Palm licenses its operating-system software to handheld and smart-phone makers, such as Handspring, Sony and Kyocera. The company has 12 major hardware vendors and chip makers signed on as licensees, and estimates more than 16 million handhelds with its operating system have been shipped to date – up to 88 per cent of all such devices on the market.

The company estimates that 95 per cent of its revenue comes from the sale of hardware. Recently, competitors have seized market share. Research company Gartner Group noted last month that Compaq is gaining on Palm and could overtake the company as the leading revenue collector from the sale of PDAs (Personal Digital Assistants). While Palm sells more devices, the research firm said, Compaq's Microsoft-powered iPaq has a higher selling price.

The new division will operate independently from the hardware unit, Palm said, but will continue to borrow staff and services from its parent company.