Investors Business Daily, Thursday, February 12, 1998 at 13:47
The good news for troubled 3Com Corp. is it's found a diamond in
the rough with the hot-selling PalmPilot pocket organizer. The bad
news is industry titan Microsoft Corp. wants to mine it.
3Com is bracing for a new push into hand-held devices by Microsoft
and a group of electronics makers. As Microsoft prepares its assault
on the burgeoning market, Santa Clara, Calif.-based 3Com is trying to
figure out ways to maintain its huge lead.
On Feb. 2, San Diego-based Qualcomm Inc. signed on to use the
software that operates the PalmPilot in a new wireless phone. And to
boost the PalmPilot's standing among businesses, 3Com signed deals
last year with IBM Corp., Symbol Technologies Inc. in Holtsville,
N.Y., and Motorola Inc. of Schaumburg, Ill.
Donna Dubinsky, president of 3Com's Palm Computing unit, says she
isn't worried just yet about Microsoft. Her division makes the
PalmPilot.
"Nobody would compete with Microsoft and not take them seriously,"
she said. "But my sense is that these products are going to be
unimpressive."
Pamela Goldschmidt disputes that. She is product manager of
Microsoft's upcoming competitor to the PalmPilot, dubbed the Palm PC.
Goldschmidt says responses to trial versions of the Microsoft product
have been favorable.
"We show them to Pilot users and many of them say, 'Can I trade
this in right now?' " she said.
Since its April '96 release, the PalmPilot has sold more than 1
million units, capturing roughly two-thirds of the market, analysts
say. It is a pocket-sized electronic organizer that connects to a
computer to share information.
Venturing outside its core business in networking products, 3Com
managed to win the lion's share of the market from such formidable
rivals as Texas Instruments Inc. in Dallas, Philips Electronics NV in
the Netherlands and Japan's Sharp Corp.
But don't expect Redmond, Wash.-based Microsoft to follow the same
path, analysts say. 3Com faces a much tougher challenge this time
around.
"It's clear 3Com doesn't have a wide open field anymore," said
Mike McGuire, an analyst with San Jose, Calif., market researcher
Dataquest Inc.
Microsoft unveiled its plans for the Palm PC, a hand-held computer
based on its Windows CE 2.0 software, in January. A number of
consumer electronics powerhouses already have agreed to make the
devices.
The seven companies that have signed on are: Philips; South
Korea's Samsung Group and LG Electronics Inc.; Japan's Uniden Corp.
and Casio Computer Co.; and Taiwan's Palmax Technology Co. and FIC
Group.
Despite Microsoft's lengthy list of formidable allies, 3Com still
has an edge, analysts say. Microsoft lacks a big PC maker in its
camp even though it's essentially launching a new computer.
Meanwhile, 3Com has IBM on its side.
"Without any big (PC) names, I would imagine that 3Com would be
relieved in the short term," said Randy Giusto, an analyst with
International Data Corp. in Framingham, Mass.
Microsoft's Goldschmidt says it is only a matter of time before
that changes.
"You can expect more companies will be announcing support for the
Palm PC," she said. "Some of those will be PC makers."
The PalmPilot has been one of few bright spots of late for 3Com.
In 3Com's fiscal second quarter ended Nov. 30, acquisition costs and
inventory reductions clobbered earnings, taking them down to $15
million from $116 million a year earlier, an 87% drop. The company's
stock is trading at about half its 52-week high of 67.
Palm Computing, which was part of 3Com's June '97 acquisition of
Skokie, Ill.-based U.S. Robotics Corp., makes up 5% of 3Com's sales,
analysts say. They say the PalmPilot isn't the type of business that
3Com would have ventured into on its own.
3Com's ability to remain in the hand-held market hinges on how
Microsoft's attack pans out. Palm PCs are expected to start shipping
later this year and should show up in the market en masse in '99.
Microsoft's Goldschmidt points out the Palm PC has more features
than the PalmPilot, including standard e-mail, voice recording for
dictation and better graphics capabilities. Palm PCs are expected to
cost $299 to $499.
3Com must try to expand the PalmPilot into new markets, while
adding features and cutting prices, analysts say. PalmPilot models
now go for $200 to $400. Add-on modems and pager kits go for another
$100 to $170.
"PalmPilot is a hot product in an underserved market," said
Michael Duran, an analyst with Lazard Freres & Co. in New York. "The
opportunity here is to get as much market share as you can before
something happens."
3Com's Dubinsky says that's the company's goal.
The Qualcomm deal puts PalmPilot into the emerging market for
smart phones, cellular devices that can receive electronic mail, and
Web pages, she says. The Symbol Technologies tie means PalmPilots
would move into such tasks as scanning warehouse inventory. And the
IBM and Motorola pacts help push the PalmPilot up the corporate
ranks, she adds.
"We continue to work with leading players," said Dubinsky. "It is
our strategy to expand."
Even though the Palm PC may have more features, analysts caution
against bogging down the PalmPilot with too many gadgets in future
versions. 3Com has to walk a tightrope between upgrading and
overloading a product that has won over users with its simplicity,
they say.
Dubinsky says 3Com plans to add more software and features,
including infrared data transmission. Also look for the PalmPilot to
get smaller. But Dubinsky says 3Com is guarding against an overload.
"That's a huge risk," Dubinsky said. "We are very conscious of
keeping it simple and keeping the elegance of the product."
|
