January 16, 2002 5:40 AM PST

Handheld industry sees hope in wireless

Palm has been sending handheld fans an e-mail promising that its newest handheld is coming soon--a move that pulls a page from Apple Computer's marketing playbook.

"Psssst," says a giant headline. "All we can say is that the newest Palm handheld is coming. Very soon."

Apple tried a similar move before the introduction of the new flat-panel iMac at last week's Macworld Expo. Although the tactic generated plenty of buzz, it did lead to speculation that Apple had even more new products in store than it did.

Palm has several new devices in the works, but the one most likely to arrive first--and be worth hyping--is a wireless successor to the Palm VIIx. Palm has referred to the upcoming device as the i705.

Palm won't be the only company coming out with a new wireless device this year. The handheld industry is looking to turn around a disappointing 2001, which saw brutal price wars and a glut of products. Adding built-in wireless features, such as the ability to make phone calls and access corporate e-mail, to more handhelds is one way that device makers hope to distinguish their products and end a downward spiral for prices.

Industrywide unit sales in the recent holiday-shopping season were similar compared with the previous year, NPD Intelect analyst Stephen Baker said, but overall revenue was lower because of falling prices.

"Things looked pretty good? in the holiday season, Baker said. "Early indications are that unit sales were pretty flat with last year." Baker added that the average price of a handheld sold in U.S. retail stores during the holidays was $218 compared with about $260 a year ago.


Meta Group says although the idea that a personal digital assistant running Linux could provide the same functionality as a Windows CE or Pocket PC device at a significantly lower cost is attractive, fact is most costs come from hardware.

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Looking ahead, Handspring has said it plans to release its Treo handheld-cell phone combo device this month. Late Tuesday, however, CEO Donna Dubinsky said the company has run into a component shortage that could delay that launch. Treos shipping in January will largely be confined to Europe, but in the United States, the devices won't be available until later in the quarter, she said.

Meanwhile, start-up Danger has been demonstrating a working prototype of its Hiptop two-way communications device aimed at consumers. And Research In Motion is expected to add voice capabilities to its BlackBerry paging devices this year.

Not all handheld makers are jumping on the wireless wave, however. Consumer electronics giant Sony is sticking with its strategy of offering entertainment-related handhelds, which so far have not included built-in wireless capabilities. Sony announced two new Clie devices Tuesday.

Meanwhile, devices using Microsoft's Pocket PC operating system, could get a speed and power boost as Intel starts shipping the first chips using its XScale architecture, the successor to the StrongARM chips used in nearly all Pocket PC-based devices. Sources say manufacturers should be able to introduce products using XScale later this quarter.

What lies ahead for Palm's i705
It remains to be seen whether hyping the i705 prior to its release is a good move for Palm. The product has already been delayed, although Palm now says it will ship this quarter. However, the company also warned that the server software needed for always-on access to e-mail won't come until the March-to-May quarter.

Thomas Sepenzis, a financial analyst at CIBC World Markets, said that the i705 should "do OK" but added that it may not have the cachet of other wireless devices because it lacks the ability to make phone calls.

"My perspective is that it is going to be perceived as a...stepchild to the Treo," Sepenzis said.

But the i705 isn't completely doomed because it does offer something the Treo doesn't. "The reality is the Treo doesn't have always-on e-mail, so there is a market" for Palm's device, Sepenzis added.

The once high-flying Palm ran into a brick wall when it hyped its m500 and m505 devices early last year before they were close to coming to market. The delay in availability was considered a contributing factor to an inventory glut at Palm that kicked off a price war among handheld makers. Although the price war was good news for consumers, it led to a sobering situation for companies' stock.

Sources say Palm is also working on other devices, including a successor to the m505 with more memory, as well as a midrange device similar to the m125 but with a color screen. A Palm representative declined to comment on any future products.

Meanwhile, Palm has come up with a name, at least a temporary one, for its operating system subsidiary. That unit, headed by David Nagel, is now operating under the name PalmSource, which is also the name of Palm's annual developer conference. This year's conference is set to take place in early February, and Palm has promised an update on its efforts to port its operating system onto chips using designs from ARM Holdings.

On Tuesday, Handspring also announced relationships with two European carriers--British wireless company mm02 and Sweden's APE Telecom--to sell its Treo combo device. Handspring has previously said the device would start shipping in the United States this month but has yet to announce a date or a deal with a U.S. carrier.

"We are working very closely with carriers and working very diligently to ramp production," Handspring spokesman Brian Jaquet said. "It is very close." The company may have more to say when it reports its quarterly earnings later Tuesday.

 

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