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Is it time for

Palm

(PALM)

to join hands with another company?

The Treo smartphone maker's largest individual investor thinks so. In a letter sent earlier this week to the company's board of directors, Mark Nelson, former CEO of Ovid Technologies, urged the board to consider selling the company to one of its competitors.

"There are numerous competitors who could benefit immediately from acquiring Palm," Nelson said in his letter. "The opportunity to realize these benefits will surely erode over time, as will shareholder value. It is imperative the Board act in a timely and decisive fashion before the opportunity to do so is diminished."

Among the companies that might make a good acquirer, according to Nelson:

Apple Computer

(AAPL) - Get Apple Inc. Report

.

Contacted by phone, Nelson declined to comment on his letter other than to say that he had not yet received a reply from Palm.

"I think the letter speaks for itself," said Nelson, who owns about 4.1 million shares of Palm, or roughly 8% of the company's outstanding stock.

Palm spokeswoman Marlene Somsak also declined to comment on Nelson's letter. She declined to say whether the company is considering -- or has already explored -- a possible sale.

Somsak did say, however, that Palm's management is optimistic about the company's outlook.

"We're always looking out at our competitors, but we feel good about our business," she said.

Palm's stock traded slightly off on the news. In recent trading, the company's shares slipped $1.03, or 2.6%, to $38.79.

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In his letter, Nelson acknowledged that things are going well for Palm right now. "Paradoxically," though, that makes this the right time to try to sell the business, he said.

The company is on the upward part of a growth curve that will likely slow soon. And just as the company hit some rocky times with its original business of making handheld computers, it's headed for similar problems in the smartphone space, the shareholder warned.

Specifically, Palm is facing competitors with financial resources greater than its own, carrier partners whose interests are often at odds with Palm's and an industry that runs the risk of quickly turning into a commodity, Nelson said.

Large competitors such as

Motorola

(MOT)

,

Nokia

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and

Hewlett-Packard

(HPQ) - Get HP Inc. Report

are gathering in the smartphone space, Nelson said.

And

Dell

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and Apple may not be far behind, he said. All those companies can afford to outspend Palm on research and development, and can afford to compete on price against Palm if need be.

Additionally, many of those companies have more extensive carrier relationships than does Palm, he said.

"These are just a few possible scenarios where Palm's margins, profits and business could be severely jeopardized; certainly there are others. The point is that it is incumbent upon the Board to act now, before any of these scenarios materialize," Nelson said.

Meanwhile, Palm is reliant on mobile-phone carriers to sell its products, Nelson said. But the carriers' chief interest is to get phones into the hands of as many subscribers as possible and to get those customers to use as many data and voice services as possible.

If they can accomplish those goals with a cheaper phone than Palm can afford to sell, they'll do that, he said.

Finally, Palm runs the risk that the smartphone business will quickly become a commodity business, Nelson said. Already, equipment manufacturers are making generic smartphones that the carriers can sell using their own brand.

Because Palm no longer owns the Palm operating system on which many of its smartphones run, critics are already saying that the company is just another boxmaker with little to differentiate it from its competitors, Nelson said.

"Perhaps there is more truth in this than Palm acknowledges," he said.

A number of companies might be interested in buying Palm to gain access to its technology and its position in the market, Nelson said. Among the companies he mentioned as potential acquirers were

Research In Motion

(RIMM)

, H-P and Dell. But Apple would be the "ideal" match, because of the potential of marrying Palm's Treo line with Apple's iPod digital music players, he said.

"It is safe to say that virtually every one of the 30+ million iPod owners also has a cell phone. An integrated iPod/smartphone would be of great appeal to current customers, and open up a broad new channel of users as well," Nelson said.

Palm has drawn praise for its Treo line, the success of which has helped the company's stock and revenue rebound in recent quarters. But the company has drawn criticism for the slow pace at which it has launched new Treo models or rolled out the device to new carriers.