Call it "The Sound of One Palm Clapping", or "Palm and Handspring go Hand in Hand."

Whatever you call it, when Palm (Quote, Company Info) said it would buy its rival Handspring (Quote, Company Info) this week, it marked a definite shift in the PDA-wireless convergence space. But analysts say it also shows that the two companies needed each other's know-how to stay active in the ever changing mobile market.

The $169 million stock swap deal is expected to get close government scrutiny before it gets approved. Palm Solutions Group president and CEO Todd Bradley estimates the paperwork should be complete by this fall.

On paper, the deal looks straightforward. One market leader buys out a struggling competitor to add smartphone products like the Treo into its handheld lineup of business-class Tungsten and consumer friendly Zire.

But under the surface, there were concerns about both companies. Palm consistently retains its number one sales spot in the world for PDAs, but the latest stats from research firm IDC's "Worldwide Handheld Qview," suggest Palm's global sales are nearly double the number of handhelds compared to its closest competitor, Hewlett-Packard (Quote, Company Info), which makes the iPAQ. Other major players in this space include Sony (Quote, Company Info) and Dell Computer (Quote, Company Info).

Handspring, on the other hand, had a technologically advanced product but was suffering from sluggish sales and a possible delisting from the Nasdaq.

Martin Reynolds, a technology analyst at Gartner (Quote, Company Info) told internetnews.com he didn't think either company could be considered really strong on their own. Both needed something to get them in a better position going forward.

"One of the challenges Palm and Handspring had operating separately is that they were competing against each other and not building market share," Reynolds said. "Now, they will be able to compete against Sony, which has been doing a great job with consumer lines. Plus, there is very little overlap between [Palm and Handspring's] product lines."

And adding the Treo line to its repertoire means Palm is now thrust into direct competition with smartphone makers Nokia (Quote, Company Info), Motorola (Quote, Company Info), Samsung, and Sony Ericsson.

"The important thing is that Palm has dominated the unwired handheld industry. It has been Palm's for the taking. This new space -- convergence space -- is a whole new animal and this is not an industry that Palm will not come in and dominate because it has no heritage," IDC senior analyst Alex Slawsby told internetnews.com.

One area where that is painfully obvious is in the European markets, which is a very phone-centric region. The competition for Palm there is not so much from other handhelds as it is from the phone market. This time last year, Palm saw a major dip in its Euro sales. Palm has since enlisted the help of Digital River (Quote, Company Info).

"I think this is mostly a U.S. story for Palm," Reynolds said.

But Slawsby added that Handspring still has time to win on some levels as the timeframe for the acquisition allows the company to continue its Treo development through the summer.

Then there is the emotional return of Handspring CEO Donna Dubinsky and Jeff Hawkins, founding members of Palm, returning to their roots.