"The Handheld Wars: The Revolution Will Not Be Handheld"
By Eric Moskowitz
Senior Writer for theStreet.com
5/7/99 9:01 AM ET
Editor's note: This column is part of a two-day series on handheld devices, running May 6 and May 7. An overview details TSC's coverage.
It's a post-PC world. At least that's what Merrill Lynch analyst Steven Milunovich and a lot of other people are calling it. Portable gadgets and information appliances will supposedly rule over stodgy desktops, and people will carry their offices in their breast
pockets.
Trend tracker International Data Corp. predicts that handheld devices will supplant PCs as the No. 1 selling computing product by 2002. Even IBM (IBM:NYSE) chief Lou Gerstner says the golden days of the PC are over.
The computer makers, however, have been slow to catch on. Microsoft(MSFT:Nasdaq) is rallying support for its Windows CE, a smaller version of the ubiquitous operating system, as an alternative to 3Com's (COMS:Nasdaq) Palm OS.
But even that hasn't spurred interest with some.
Despite all the hoopla and predictions, many top PC makers are betting that information appliances -- gadgets that can do everything from check email to provide real-time news -- will remain a niche product dominated by the PalmPilot. They aren't missing the boat because it's not sailing.
"We don't buy into the thinking that these handhelds will replace the PC," says spokesman T.R. Reid from Dell (DELL:Nasdaq), which has quickly moved into such product lines as storage, servers and workstations. "It's not an area where we currently have an interest."
3Com PalmPilot V Photo
Source: 3Com
Unquestionably 3Com dominates the field. With the Palm unit, the company captured
79% of the handheld market in the U.S. last year, according to the latest data from
IDC. IBM's (IBM:NYSE) WorkPad followed, with a puny 6%. Compaq
(CPQ:NYSE) and Hewlett-Packard (HWP:NYSE) don't even show up on the list,
although they only recently launched ad campaigns for their respective PalmPilot-like
gadgets.
Handhelds just aren't attracting the big dollars that other areas such as services and
storage are getting from the likes of Compaq and Dell, it seems.
Some PC makers are staying away until they are certain there will be an abundance of
applications for these machines. Windows CE "needs a lot better application software
that consumers find simple to use," says Seymour Merrin, president of Merrin
Consulting Services, a tech consulting firm.
Dell and the other PC makers no doubt still remember how Apple (AAPL:Nasdaq)
launched its own handheld device, the clunky Newton, with its buggy
handwriting-recognition software, in 1994. Newton flopped badly despite a massive
marketing campaign and interim CEO Steve Jobs killed it off soon after he took over.
Interestingly, Apple may be set to tackle this field with another new product,
code-named the P1 or iBook and expected later this summer or in early fall.
Compaq experienced its own problems with a home-theater product developed with
Philips (PHG:NYSE ADR). The PC-TV Companion was a bust, and with little fanfare,
Compaq walked away from the product about a year ago, according to Sean Kaldor,
vice president for developing markets for research firm IDC.
Compaq Aero Photo
Source: Compaq
More successfully, Compaq unveiled its Aero 2100, a Windows CE-compatible
handheld product. Compaq is keeping mum about sales, but Aero 2100 is still not even
on the map compared with the PalmPilot. Compaq may be so late to this handheld
game that it should catch the next hot appliance wave, says Merrin.
Ironically, H-P, long a technological innovator in PC-related areas such as disk drives
and printers, had a great chance to win the PalmPilot market in the early days from
3Com, but let the opportunity slip, says Merrin. "H-P should have had the
[handheld-device] market wrapped up by now." Instead, H-P has its own Windows
CE-powered handheld computer, called the Jornada 420, which owns less than 2% of
the market, according to IDC.
3Com's most ambitious rivals may be consumer-electronics companies from other
countries. Sony (SNE:NYSE ADR), Philips and France's Thomson Multimedia are just
three of the bigger players. Thomson unveiled plans last fall to join with Alcatel
(ALA:NYSE), NEC (NIPNY:Nasdaq ADR), Microsoft and DirecTV to work on
handheld projects. And Philips recently launched a handheld device called the Nino and
a Windows CE-powered, 16-megabyte Velo mini-PC, which at $499, is priced
attractively compared with competitive products from H-P and Compaq.
Meanwhile, many U.S. PC makers are betting that these information appliances will be
no more than a fad and that the PC will become a "hub" for home data flow in the
future. "PC vendors are positioning themselves for being a home network for new audio
and video devices," says IDC's Kaldor.
What's likely is PC makers will continue dipping their toes into the handheld market
while waiting for a new product line or software OS to emerge after the PalmPilot's
Palm OS. One possible OS contender is Linux. If this OS continues to generate interest,
PC titans can partner up with Linux licensees such as Red Hat Software -- Dell already
has -- and develop hardware products to complement it.
This could be a second chance to catch a ride on the bandwagon, even if it's unclear
where it's headed.
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