March 14, 2001 1:25 PM PST

Will new Clie rescue Sony's sales?

Sony's latest entry in the handheld market offers what many had expected the first time around.

The newest version of the Clie, announced Wednesday, combines the Palm operating system with a sharper screen and the ability to play music downloaded from a PC--a feature not yet available on other Palm-based handhelds. The unit, which will go on sale first in Japan next month, also features four times the screen resolution of other Palm-based handhelds.

When Sony first announced in November 1999 that it was licensing the Palm OS, the consumer electronics giant was expected to become a powerful force in the handheld market. However, sales of the product that Sony launched in the United States in August have disappointed the company.

"It was overpriced and under-featured," said Stephen Baker, an analyst with market researcher PC Data.

The new unit will go on sale April 7 in Japan, although the company plans to start taking orders on its Japanese Web site next week. A Sony representative said that the new Clie will launch in the United States this year, with an announcement expected sometime around midyear.

The new Clie (pronounced clee-ay) can play music downloaded to a special type of Memory Stick, Sony's standard for flash memory. The so-called Magic Gate Memory Stick offers protection for copyrighted content, such as music files.

The new handheld uses Motorola's 33MHz Dragonball VZ chip and has 8MB of memory. According to Sony, a rechargeable lithium-ion battery will power the Clie for 15 days of organizer use or for 11 hours of music playback.

In Japan, Sony is offering software for downloading television program guides and maps, as well as a program that allows Clie owners to watch television programs that are downloaded onto a Memory Stick. Sony says up to 160 minutes of color images can fit on a 128MB Memory Stick.

Although the U.S. handheld model may not have the exact same features or price as the Japanese unit, it is expected to have the ability to play music along with the improved 320 pixels by 320 pixels screen. Other Palm-based handhelds display only 160 pixels by 160 pixels.

Palm has touted Sony as the licensee that was going to bring the handheld into the entertainment market, but the initial Clie broke little new ground. It could play video clips, but without sound.

"It delivered half of what you needed," IDC analyst Kevin Burden said.

The black-and-white Clie accounted for just 2.3 percent of U.S. retail sales in January and 1.4 percent of sales in the previous month, according to PC Data. By contrast, Palm accounted for about 60 percent of all handhelds sold at U.S. stores in January. And Handspring, another Palm OS licensee, had a quarter of the market.

A color version of the Clie was launched last year in Japan. Still, low demand has forced the company to cut production, according to recent reports.

Although the original Clie offered the ability to add memory or other features through the Memory Stick slot, Sony has not been able to capture the same attention of developers and consumers that Handspring got through its Springboard expansion slot or that Palm has lined up for its forthcoming Secure Digital expansion.

"People weren't sure what Memory Stick was going to give them," Burden said. "There was certainly some benefit there, but it wasn't communicated very well."

In an effort to boost sales of the U.S. model, Sony has been offering a $50 rebate and a free leather case with the Clie. With the rebate, the Clie sells for $299. But even with the price cut, Baker said, the device is not selling well.

"Given its features and what else is out there, it's probably a $199 product," Baker said.

However, Baker added, Sony's brand name and distribution should enable the company to sell plenty of handhelds if it can bring out an attractively priced product with the new screen and music playing ability.

"If they can come out in the same price range, certainly they can be competitive with Palm and Handspring," Baker said. The new Clie is expected to sell for $416 (50,000 yen) in Japan.

Word of Sony's new Clie comes as other handheld makers are announcing their latest products. On Monday, Handspring unveiled its slim Visor Edge model, while Palm is planning next Monday to announced its color-screen m505 model.

Adding multimedia features could give Clie a foot in the door, even though Sony has seen the appeal of its past digital audio products blunted by the fact that its products typically have more rigid copy protection schemes than do its rivals. Unlike most makers of digital audio players, Sony also has the profits of its massive record label to think about.

The fact that Sony is the first Palm licensee to build digital audio into its handheld comes as no surprise. Palm's strategy has been to let each of its partners take the so-called Palm Economy in a new direction. Licensees can add features, although those features eventually are added to the operating system.

For example, Handspring was first with 16-bit color in its Visor Prism, although that will become a standard feature supported by the new version 4.0 of the Palm OS.

Palm has said that it will look to Sony to innovate in the entertainment and multimedia areas.

Letting its licensees each innovate in a particular area makes sense, Burden said. Doing so allows Palm to reach into many new areas at once.

"It's segmentation," Burden said. "It's strictly segmentation."

 

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