Although the rumor of a new phone has been swirling since last month, it's expected to debut at CES on Thursday.

Jon Rubinstein, Palm's executive chairman, told Business Week that the company will launch a product that bridges Research In Motion's BlackBerry devices and Apple's iPhone. Rubinstein worked for Apple for nearly a decade.

Perfect Timing

Although analysts are seeing a downturn in mobile-phone sales, converged mobile devices such as smartphones are racking up success. Smartphones have most of the features of mobile phones, including personal information management, games, office applications, and multimedia, but a major differing factor is the operating system.

High-level operating systems -- including Android, BlackBerry, Linux, Mac OS X, Palm and Symbian -- are helping the smartphone market stand out, according to IDC.

Smartphones are expected to grow 8.9 percent worldwide this year, according to IDC. Beyond 2009, growth is expected to return to double digits faster than the overall mobile-phone market.

But will Palm have a piece of that market? Some observers are already counting Palm out, while others insist that's premature.

Palm's Future

Palm's move to release a new OS and phone could not come at a better time for the struggling company. A successful operating system will save Palm from a lot of speculation about what it has been working on in the past year.

"This will be a way for them to say you have all this money from U2's Bono and Elevation Partners -- what do you have to show for it?" said Ramon Llamas, senior analyst of mobile devices, technology and trends for IDC. "If it is a head-turner -- great. Congratulations."

Llamas said he hopes Palm took its time with the operating system to work out any bugs, because it can't afford any mistakes.

Apple and RIM now control two-thirds of the smartphone market, according to Paul Carton, vice president of research at ChangeWave, who said Palm, a "smaller" and "weaker" player, has proven unable to compete. He pointed to a recent survey by ChangeWave which shows RIM and Apple dominating the market.

Llamas said it's too early to eliminate Palm from the smartphone market. "A lot of folks have written off Palm, and I think it is premature to do so," he said. "Given all the time it took to put this new operating system together, let us see how this turns out"

If the Nova OS is well received, Llamas believes it may improve Palm's sales, but he added that other factors will play a big part in Nova's success or failure. He pointed to the developers behind Apple's successful App Store.

"If Nova OS does well, how much will app developers warm up to it?" Llamas asked. "I think it will stick around, but as with any other company they will go through some growth spurts."