Will handheld GPS units and Mobile phones merge?

Yes, but not like people think it is. We like to call the device in our pocket a 'phone', the one in our car 'navigation', the one we take on an airplane a 'media player', and the one for jogging a 'music player'. But what each of them does overlaps with the other. Navigation can now make phone calls (onstar, tomtom's FindMe), phones can play music, music players can play movies, etc. The lines are getting blurred. I don't think you'll ever see one class of hardware lose to another class (gps to phone), what you will see in the long term is portability of the application from one hardware to another. For example, the GPS in your in-car navigation automatically synchronizing with the device in your pocket. After you park the car, and get out, the direction information comes with you as you walk 2 blocks from your parking spot to your destination.