<<Britain's Psion Challenges Microsoft in developing 'Smart' Cell Phones>>
nytimes.com
<<MILTON, England -- A visitor to the Psion plant here was
inquiring the other day about the competition facing the company,
which is best known in Britain for its palm-size organizers. "Well," one
top executive replied, ''there's a guy on the West Coast of the U.S.A. ..."
To American ears, that might
have sounded like a coy
reference to 3Com Corp.,
based in California's Silicon
Valley. 3Com makes the
Palm Pilot family of personal
organizers, which soundly
trounced Psion's products in
the United States, though
Psion (pronounced SY-on)
claims 59 percent of the
European market.
But in fact, Claes Bergstedt,
the director of Psion's
enterprise computing
division, was alluding to
bigger prey -- and a different
line of business. By
harnessing its Epoc operating
system, the basic software of its palm-top organizers, to the next
generation of wireless telephones, Psion PLC and the world's biggest
mobile phone producers are taking aim at no less a target than Microsoft
Corp.
Microsoft wants cell phones of the future to use a version of its Windows
operating system.
The stakes are huge because the winner of this race will control the
technology that cell phones and other high-speed wireless devices use to
connect people to their e-mail, online stock brokers and myriad kinds of
data on the Internet.
Late last year, Psion signed a deal with Sweden's Ericsson and Finland's
Nokia mobile phone producers that Psion hopes will make Epoc the de
facto operating system standard for so-called smart telephones and
hand-held communicators in the next century. Earlier this year, Motorola
and NTT Docomo, the mobile phone unit of Nippon Telegraph &
Telephone, joined the deal, along with Sun Microsystems, whose Java
programming language also challenges Microsoft. The resulting
consortium, known as Symbian, will develop a version of Epoc as a
direct challenger to Windows CE, Microsoft's pared-down version of its
operating system.
"It's a market that's just developing, but it's a crucial market," said Sean
Faughnan, a technology analyst with J.P. Morgan in London. "Symbian
looks like a very credible challenger."
Even Microsoft acknowledges Symbian's present lead. "I would say that
yes, we are the underdog right now, which is not how many people are
used to thinking of Microsoft," said Robert O'Hara, Microsoft's chief
strategist on wireless technology. But, he added, Microsoft was
discussing a variety of other projects with the big mobile-phone
producers. "So it's not like we are shut out and the game is over."
By any standard, Psion is playing David to Microsoft's Goliath. Its sales
last year totaled $225 million compared with Microsoft's $14.4 billion.
Its employees number around 1,100, compared with Microsoft's 30,000.
Psion's modern factory in Milton, just south of Oxford, which produces
scanners, hand-held devices and business computers, is easily dwarfed
by Microsoft's 26-acre campus at Redmond, Wash.
Perhaps most important, its cash reserves are minuscule compared with
the $22 billion Microsoft has on hand, which it is dipping into lavishly to
buy into markets for its Windows CE software.
Still, Psion has some marginal advantages in the cell phone market, not
least of which is a more tightly focused product. Microsoft sees
Windows CE as the key to dominating just about any consumer device
smaller than a computer. In addition to Internet devices, this includes
set-top boxes for cable television, electronic organizers and even an
emerging category of minuscule notebook computers.
Psion, in contrast, is focused solely on wireless Internet and voice
communications technology. To that end, the company reckons it has an
advantage. Its partners in Symbian control 80 percent of wireless phone
production worldwide and, with Ericsson and Nokia in particular, it has
tied itself to GSM, or global system for mobile communications, a
standard that gives consumers seamless communications throughout most
of Europe and onto South Africa and parts of Asia. The U.S. market is
fractured into multiple standards, none strong enough to emerge as
dominant.
"Right now, you have the GSM guys really trying to control the market,"
said Abhi Chaki, a telecommunications analyst at Jupiter
Communications in New York. "And I think they'll be successful in that
because they have the standard, whereas in the United States there are
four or five technologies that exist like different islands."
Symbian's emergence, of course, coincides with the remarkable surge of
acquisitions by Microsoft in European -- particularly British -- cable and
wireless communications companies.
Moreover, said Georges Nahon, the director of
Microsoft's European Internet unit in Paris,
Microsoft is also looking for ways into digital
subscriber line technologies for offering
high-speed Internet access. Because DSL is a
telephone-based service, it offers even broader
availability than cable does. Analysts say that
Microsoft's aim is clearly to control the
consumer communication chain through its
Windows operating system and embedded
Internet Explorer browsing software, whether the link in question is a TV
in the living room or a wireless phone.
Earlier this month, Microsoft invested $5 billion in AT&T and its growing
cable-based network, ensuring Windows a sizable chunk of the set-top
box market. It also has agreements to develop wireless technology with
Qualcomm in the United States and British Telecom. Last week,
Microsoft announced deals with Nextel Communications Inc. in the
United States and a Swedish start-up called Sendit, a pioneer in enabling
Internet access from mobile phones.
3Com, meanwhile, is taking a distinctly different path than Psion or
Microsoft by focusing on ways to enable its Palm Pilots to communicate
with any kind of phone. In fact, Joe Sipher, director of 3Com's wireless
products division, argues that the whole notion of developing all-in-one
wireless devices that combine the functions of organizers, cell phones and
Web browsers is fundamentally flawed. While the new Palm VII will
offer wireless connections to the Internet, Sipher said it would not try to
be all things.
"Unlike Microsoft, we don't want our operating system running set-top
boxes or toasters," he said. "And as for these convergence products,
they've been tried before and failed. Customers keep saying they want
one device that does everything, but the truth is the attributes that make a
great phone do not necessarily make a great data device and vice versa."
He added, "I think a fundamental mistake that designers and developers
make is giving customers what they want instead of giving them what they
need."
As for Microsoft, Psion insists that the flurry of acquisitions by its rival
cannot poke a hole in the advantage Psion's Epoc operating system
enjoys in telecommunications.
First, said Psion spokesman Anthony Garvey, the tie-in with the world's
leading cell-phone producers means that Epoc, which the company
developed over the last 15 years, has a better-than-even chance of
becoming the de facto industry standard.
"By the year 2002, it's estimated there'll be 600 million users of mobile
phones and wireless-enabled devices" for accessing and browsing the
Internet, he said. "Eighty percent of those will be made by Ericsson,
Nokia or Motorola" -- for which the company stands to receive a license
fee of $5 to $10 for every one that runs Epoc.
Second, through its alliance with Sun, the Symbian version of Epoc will
run Java-based software, making it compatible with a wide and growing
assortment of digital products, Garvey said.
Microsoft is not standing still, however. O'Hara said versions of
Windows CE in development will, like the Epoc system, work in "real
time" -- that is, responding to a user's commands with no delay. "We
think we are going to have a totally competitive product," he said.
Further more, Microsoft is seeking what he termed an "end-to-end
solution," meaning that the company intends to match Internet services
tightly to the device that happens to be using them. For example, he said,
Microsoft is developing a customized version of its MSN Internet service
for wireless phones.
"It's not enough to provide a hand-set," he said. "What the information
people want when they are mobile is quite a different sort than when they
are at home."
For all that, the Symbian deal could not have come at a better time for
Psion, whose sales of business-use hand-held computers, palm-tops and
data cards had been languishing.
"Psion computers had a difficult year in 1998, with changing market
conditions," said company chairman David Potter in March.
And while there was no playing down the growing dominance of 3Com's
Palm Pilots, Potter noted that "the competitive threat from Windows
CE-based hand-held computers had diminished as those products failed
to establish a significant market presence."
Last June, Psion's stock was trading at around $3.20 in London. When
the Symbian deal was announced, it jumped to around $14.40. It closed
at $12,49 yesterday.
The agreement gave Psion a 31 percent stake in the alliance, with 23
percent each to the other partners. But Psion also inherited 31 percent of
some $32 million in development costs. Last year, Psion reported pretax
profits of 23.3 million, or $37.3 million at current exchange rates.
When all is said and done, many analysts give Symbian only a 50-50
chance of prevailing over Microsoft. Still, the race is on.
"It's very much about being first in the market place," Bergstedt said.
"There's a huge potential to capture the marketplace.">>
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