Extended Systems provides software that connects enterprise applications with handheld devices. The acquisition, announced in March, was part of Palm's drive to become a back-end enterprise systems supplier with an offering that would support multiple operating systems, including those of rivals Symbian and Microsoft.
At the time of the proposed acquisition, Palm said that by delivering a single system for the enterprise, it would make it easier for IT managers to deliver mobile and wireless access to handheld devices across the organisation. The company stated that it wanted to be "as popular with IT managers as it is with individuals".
However, last week the two companies said the "slowing economy and market conditions" had led them to conclude that a termination of the merger plans would best serve both companies.
The economic slowdown has hit Palm badly, with sales for the second quarter of 2001 set to be about half of its already lowered expectations. In recent months the company has cut 15% of its workforce and cancelled plans to build a new headquarters.
"This is a big setback for Palm as the deal was crucial to the company's push into the enterprise," said Thomas Reuner, an analyst at Gartner.
However, Reuner said the corporate handheld market is still "an open playing field", particularly as Microsoft is concentrating on the telecoms market - with its mobile "Stinger" platform - rather than the PDA market.