We continue our high-growth study with a first look at interesting handheld computing rivals, Palm (Nasdaq: PALM) and Handspring (Nasdaq: HAND).

The Palm operating system was created by Jeff Hawkins when he worked at U.S. Robotics, and was acquired almost unwittingly by 3Com (Nasdaq: COMS) when it bought that company in 1997. 3Com spun Palm Computing off in early 2000 and today it is an $11 billion company. Jeff Hawkins and former Palm CEO Donna Dubrinsky left Palm and started Handspring in 1998. They soon launched the Visor, a handheld device that runs on the Palm operating system.

Although the Palm and the Visor both run the Palm operating system, large differences exist between the two handhelds. The Visor can be converted into a phone, digital camera, MP3 player, wireless modem, global positioning satellite (GPS) module, and more. Palm, meanwhile, is preparing to release a new generation of wireless Palm products and services to enliven its older generation product. The industry realizes that wireless is the future.

Ultimately, "everything-in-one" is the real future, and handhelds might have a better chance than wireless phones in succeeding in this versatile task. It has always been difficult to enter information and read it from a small screen on a phone.  If the phone manufacturers remedy this by making phones wider, like a handheld, people might as well buy a handheld instead. Meanwhile, handhelds have functional screens (as well as calendars, near-endless address books, games, and so forth) and can still be slim enough to make room for a compact phone.

Palm even believes that it can replace the common wallet. Palm is working on software to make it easy to pay for things with your Palm Pilot by simply beaming a merchant electronically -- making an electronic payment, or credit, on the spot. You won't need to carry a credit card any longer.

The following is a snapshot of some company numbers.

                            Palm        Handspring
Computing Inc. Sales (past 12 mos.) $1.54 bil. $272 mil. Most recent gross profit 36.0% 31.4% 12 mos. earnings per share $0.11 -$1.46 Cash, equiv., invest. $974 mil. $207 mil. Long-term debt $0 $0 Share price $21 $29 Market Value $11.9 bil. $3.6 bil. Price-to-sales 7.7 13.2 2001 EPS estimate $0.14 -$0.26 2002 EPS estimate $0.23 $0.06 Est. 5-year growth rate 41.4% 76.6%

When you view our investment criteria for this study, you realize that Palm and Handspring meet many of the requirements. Both operate in businesses that possess expanding possibilities; sales and earnings promise to grow strongly as handhelds become more and more relevant to our lives; the potential for related products and services are many.

The two companies themselves offer different qualities to investors. Handspring has been fast out of the gate in making its Visors cool -- and I do mean to use that word, cool. It is difficult to enter a market dominated by one leader and begin to sell a new product as quickly as Visor has. Giving its Visor phone, camera, and MP3 capabilities put Visor in front of Palm in functionality; most Visors also have more memory than most Palms, and Visor prices are comparable or less expensive. Handspring appears to be the nimbler, faster-moving company.

However, Palm is due to unleash a wave of new products centered around wireless applications, and it controls the all-powerful operating system, which Handspring licenses. The Palm operating system faces some challenges because it isn't robust enough to handle increased wireless applications. It needs to be deepened, but at the same time must remain "light" and simple. That said, Palm is in the driver's seat because so many programs rely on its operating system.

Several useful articles can be found on Palm and Handspring in Palm's Fool Network News area. We'll have more to say about the differences between the Palm and Visor and their services soon, when we interview long-time Fool Keith Pelczarski (TMF Czar), who has studied the issues for a few years. Once that's done, we can decide which company to give the most attention.

To discuss these companies, visit us on the Drip Companies board, linked above. Fool on!

When Jeff Fischer, David Gardner, and two other Fools met Donald Trump, David used his Palm Pilot during the meeting, writing down notes of what Donald said. Jeff has a Palm V but is considering a Visor. He doesn't own either stock. The Motley Fool is investors writing for investors.