Handspring made small gains on Palm during February, according to PC Data. Handspring, which licenses the Palm operating system, ended February with 28 percent of the US retail handheld market, up from 26 percent the month before. Palm accounted for 59 percent of the market in February, down from 61 percent in January. Sony, which also uses the Palm OS, controlled 2 percent of the market last month. Altogether, handhelds that use the Palm OS accounted for 89 percent of the US retail market in February. Meanwhile, the companies that license Microsoft's Pocket PC operating system held steady last month with a combined 9 percent of the market. Hewlett-Packard had 4 percent market share -- Compaq had 3 percent, and Casio had 2 percent. All other handheld makers made up the remaining 2 percent. Pocket PC-based devices are doing better overseas, gaining ground on Palm in Europe. A recent study by the England-based market researcher Context Integration, showed Palm's European market share had dipped from 59 percent in January 2000 to 55 percent in December. By contrast, Hewlett-Packard and Compaq, the two largest manufacturers of Pocket PC devices, combined for 31 percent of the European market at year's end, up from 18 percent at the start of 2000. Monday didn't bring all good news for Handspring. Samuel May, an analyst at US Bancorp Piper Jaffray, downgraded the company from "strong buy" to "buy" on concerns that a slowdown in corporate purchasing could impact the company's revenue. Handheld computer manufacturers have been engaging in a fierce battle to gain more market share and compete with better products. On Monday, Palm unveiled two new handheld computers with slimmer bodies and a postage stamp-sized expansion slot. Handspring last week introduced its slimmed-down Visor Edge. Hewlett-Packard plans to introduce a cheaper colour version of its Jornada handheld on Wednesday. Take me to the Mobile Technology Special Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read what others have said.