Handheld Market is getting crowded By Frances Hong
Technology Reporter
If you’re looking for a cult-like following in the wireless handheld world, look no
further than the palm of your hand.
That’s right, Palm Inc. {PALM}, the maker of those ubiquitous and oh-so-trendy
gadgets has taken the personal digital assistant market by storm. In a little
less than five years, the company has managed to grab a 70 percent market
share in the handheld connected organizer business. That is quite a feat,
considering its Palm OS competes with the almighty Microsoft Corp.’s {MSFT}
Pocket PC, a streamlined version of its Window CE operating system.
And according to research firms, the numbers will only get larger. International
Data Corp. predicts that 50 million handheld devices will be in the workforce by
2003 with a good portion having wireless capability. Forrester Research expects
that 57 percent of the total workforce will be mobile within two years. All of
which adds up to more power for the Palms of the world.
So in the war of mobile computing platforms, which ones will be the real
survivors? It’s not that easy, industry watchers say.
"The whole idea that there’s gotta be a winner and a loser might not necessarily
be the case here," says Merrill Lynch analyst William Crawford. "Maybe it’s
neither Microsoft nor Palm, or both, but there are a lot of companies coming in
with various forms of wireless."
Currently, there are three primary platforms: Palm OS, Microsoft Pocket PC
and EPOC, which is owned by London-based Psion PLC’s {PSIOF}Symbian, a
joint venture with Ericsson {ERICY}, Japan’s Matsushita, Motorola Inc. {MOT},
Nokia Corp. {NOK}, Philips Electronics and Sony Corp.{SNE}.
According to Crawford, these systems control the market, accounting for a
significant portion of the volume sales.
Worldwide Handheld Companion Shipments
1998
1999
1998
Market
Share
1999
Market
Share
Growth
Yr. To
Yr.
Palm
1,793
2,618
44%
53%
46%
Casio+
353
499
9%
10%
41%
Sharp
464
356
11%
7%
-23%
Psion^
322
349
8%
7%
8%
IBM*
125
276
3%
6%
122%
Hewlett-Packard+
238
265
6%
5%
11%
Compaq+
88
120
2%
2%
36%
NEC+
91
109
2%
2%
20%
Handspring*
----
54
NA
1%
NA
PMCG
258
52
6%
1%
-80%
Other
368
293
9%
6%
-20%
TOTAL
4,100
4,991
22%
* = Palm OS Licensee
+ = Denotes Windows CE Licensee
^ = Denotes EPOC Licensee
The Symbian joint venture, though not a threat at the moment, could be a
powerful contender, given the support from the three major mobile phone
makers. An initial public offering is in the works for next year.
What’s interesting, Crawford says, is that a number of analysts and Europeans
suggest that EPOC will eventually dominate the space. But remember, some
people made the same prediction about Windows CE dominating Palm in a
year and that obviously hasn’t happened.
To be sure, the phone manufacturers are hedging their bets as well. Nokia has
a deal with Palm, and Sony is creating cell-phone devices with EPOC and
Palm.
IDC expects EPOC to have a 7.5 percent market share in handhelds worldwide
for 2000 and an 11.5 percent market share in smart phones.
Throw Canadian firm Research in Motion Ltd. {RIMM} into the mix, popular for
its always-on Blackberry device, and Handspring Inc. {HAND}, founded by two
former Palm executives, and the field already shows signs of being a bit
overcrowded.
"It will take time for a shakeout and to witness which ones are the survivors and
which ones aren’t," Crawford says.
The handheld space in general, however, says A.G. Edwards analyst Jimmy
Johnson, is still in its infancy, with plenty of room for future growth.
Between Palm and Handspring, which uses the Palm OS, Johnson says the
two have a combined market share of 90 percent. "It will continue to be the
case because of ease of use and functionality," he says.
In mid-to-late September, the Sony CLIE handheld will hit retail stores. The
Palm-based device will have multimedia capabilities currently not widely
available on other Palm-based gadgets.
CLIÉ: newest Palm on the block
Why are major companies such as Sony teaming up with Palm instead of
Microsoft?
"Because it pays to be nice to others," says one industry analyst who prefers
not to be named. What concerns potential partners about Microsoft is the
software firm’s aggressiveness to sign up anyone, including competitors offering
similar devices. Palm, on the other hand, is more selective when it comes to
licensing, some say.
Pacific Crest Securities analyst James Faucette says Microsoft’s Pocket PC is
a technologically more-advanced product. But the Palm system, he notes, has
a huge advantage in terms of developers, with over 100,000 in force. Not to
mention it’s a sexy product in the retail markets.
"If companies have their druthers, they prefer to go with Palm because of
Microsoft’s past business practices," Faucette adds.
Mixing Microsoft with Politics
For fiscal year 2001 ending in May, Faucette projects sales growth of 85
percent for Palm, reaching more than $4 billion by 2003.
As mobile phones and PDAs begin to merge, Ericsson forecasts that by 2003,
about 500 million will be connected to the Internet by cellular, be it mobile
phone or cellular-enabled PDA devices.
Despite Palm’s popularity, however, its shares continue to drag. The company,
which went public last December, trades barely above its IPO price of 38.
"From a strategic standpoint, Palm is very much underappreciated," says
Faucette, who rates the stock "buy."
He blames the fact that people simply look at it as a "device" company selling
into the PDA market. But once this segment crosses over with the cellular
market, it will bring extraordinary opportunities for Palm.
"Wireless data is one of the biggest trends in the industry today," says
independent telecom analyst Jeff Kagan. "Demand will explode in the next few
years as devices move away from the clunky devices that exist today. The next
generation will be more robust, more user friendly and will change the way we
do things."
But don’t expect to see any clear-cut winners for at least three years, Crawford
says. "Palm is the incumbent in the data side, but they need to add voice or
wireless connectivity, which is currently not in 95 percent of their devices," he
says. "And people on the wireless side need to add data. It’s difficult to pick a
winner at this point." |
