SUNNYVALE, California, June 29, 2005 — PalmSource, Inc. (NASDAQ: PSRC), today announced results for its fiscal fourth quarter and year ended June 3, 2005. Revenue for the fourth quarter of 2005 was $17.3 million, including an early buyout of a licensee's future minimum royalty commitments for $1.5 million, as compared to $17.7 million reported in the year ago quarter. Gross margin was 93 percent as compared to 91 percent in the year ago quarter. GAAP net income was $18.3 million or $1.12 per share, as compared to a GAAP net loss of ($2.9) million or ($0.23) per share reported in the year ago quarter.

Non-GAAP net loss for the quarter was ($0.7) million or ($0.04) per share, as compared to non-GAAP net loss of ($0.6) million or ($0.05) per share in the year ago quarter. Non-GAAP net loss and loss per share for the fourth quarter of 2005 excluded the following:

•$26.7 million for a gain on the sale of assets (the Company's interest in Palm Trademark Holding Company, LLC) to palmOne, Inc.
•$2.7 million for restructuring charges related to the reorganization
•$2.5 million related to the severance package for the Company's former CEO
•$2.3 million for stock-based compensation expense
•$0.2 million for amortization of purchased intangible assets

GAAP EPS for the fourth quarter of 2005 was calculated using diluted shares outstanding of 16.3 million, while non-GAAP loss per share was calculated using basic shares outstanding of 15.9 million shares. GAAP and non-GAAP loss per share for the fourth quarter of 2004 were calculated using basic shares outstanding of 12.6 million shares.

Palm OS licensees reported shipping a total of approximately 1.1 million units during the quarter, of which 37 percent were smartphones and 63 percent were PDA's and other mobile handheld devices. This compares to a total of approximately 1.4 million units shipped in the fourth quarter of fiscal 2004, of which 18 percent were smartphones and 82 percent were PDA's and other mobile handheld devices.

"While we still face significant challenges over the next several quarters, we continue to move forward with our development efforts in the broader mobile phone market," said Patrick McVeigh, interim CEO. "We are committed to our transition to Linux-based platforms that deliver a great user experience."

Full-year Results
For fiscal year 2005, revenues were $71.9 million, as compared to $73.1 million in the prior year. GAAP net income for 2005 was $19.5 million or $1.28 per share, as compared to a net loss of ($15.2) million or ($1.40) per share in the prior year. Non-GAAP net income was $4.0 million or $0.26 per share, as compared to non-GAAP net income of $1.2 million or $0.10 in the prior year. GAAP and non-GAAP EPS for 2005 were calculated on a diluted basis using a weighted average of approximately 15.2 million shares. GAAP loss per share for 2004 was calculated using a weighted average of basic shares outstanding of 10.9 million shares. Non-GAAP EPS for 2004 was calculated on a diluted basis using a weighted average of 11.6 million shares.

Reorganization of Product Development, Administration and Sales and Marketing
PalmSource today also announced an internal reorganization of the Company's product development, administrative, marketing and sales organizations. As part of this reorganization, the Company plans to reduce its full-time head count by approximately 16 percent in the U.S. and has taken a $2.7 million restructuring charge in its fiscal fourth quarter of 2005, primarily related to employee severance arrangements. Over half of the head count reductions were middle and senior management positions, including three senior vice presidents. The Company expects annual salary savings of approximately $6.0 million in fiscal year 2006 related to the reorganization.

"This reorganization reflects the evolution of our business model, as we have taken action to tighten our focus over the next 12 months," said Jeanne Seeley, PalmSource's chief financial officer. "By streamlining our product development efforts and administrative functions, and combining our sales, marketing and business development activities, we not only expect to increase internal synergies between these groups, but we are also aligning our cost structure with the reality that we are in a new product development period."

Business Outlook
For its fiscal first quarter ending September 2, 2005, the Company expects revenue in the range of $14.3 million to $14.8 million with a GAAP loss per share in the range of ($0.23) to ($0.26). First quarter GAAP EPS includes approximately $0.10 per share for stock-based compensation and $0.01 per share for amortization of purchased intangible assets that should be excluded when calculating non-GAAP EPS. GAAP and Non-GAAP loss per share should be calculated using 16.3 million basic shares outstanding.

Investor Conference Call / Webcast Details
The Company will hold a conference call on Wednesday, June 29, 2005 at 2:00 p.m. PDT to review its results. It will be broadcast live and archived on the web at www.palmsource.com/about/ir.html. A replay of the call will be available for 7 days beginning at 3:00 p.m., PST. The replay number is (800) 642-1687, and the passcode is 7015745.

About PalmSource
PalmSource, Inc., the company behind Palm OS®, a leading operating system powering smart mobile devices, is a leading developer of software for mobile phones and other mobile devices. Its products include a wide range of software for mobile phones at all price points. More than 39 million mobile phones, handhelds, and other mobile devices run PalmSource software. Palm OS has given rise to a large community of users, enterprises, developers and manufacturers, who together make up the Palm Powered™ Economy. More information about PalmSource is available at www.palmsource.com, www.palmsource.co.uk, www.palmsource.fr, www.palmsource.de, www.palmsource.com/es and www.palmsource.com.cn.

###


Cautionary Note Regarding Forward-Looking Statements: This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, without limitation, statements regarding our strategy, financial results, and internal reorganization. The risks and uncertainties that could cause our results to differ materially from those expressed or implied by such forward-looking statements include, without limitation, are ability to successfully execute our strategy; our ability to transition to Linux-based platforms in a timely manner that our accepted by licensees and end users; our ability to continue to grow and maintain the Palm Powered Economy; our ability to successfully implement our planned reorganization, achieve the anticipated savings, and to retain the resulting work force; our ability to successfully streamline our product development process and combine our sales, marketing and business development activities; realization of the anticipated growth in the mobile phone market; the ability of our existing and new licenses to introduce new products in a timely manner that meet end user demands; our ability to work successfully with our Palm Powered Mobile World partners to create broader adoption of Palm Powered products by end users, developers and carriers; and other risks and uncertainties contained in our public announcements, reports to stockholders and other documents filed with and furnished to the Securities and Exchange Commission, including our Annual Report on Form 10-K for the period ended May 28, 2004 and our Quarterly Reports on Form 10-Q for the periods ended August 27, 2004, November 26, 2004 and February 25, 2005. All forward-looking statements in this press release are based on information available to us as of the date hereof, and we assume no obligation to update these forward-looking statements.

---