Palm's market position erodes

No. 1 handheld maker Palm lost a big chunk of market share in the United States last year, according to new figures from market researcher NPD Techworld.

NPD also found that even though last year's price war among handheld makers drove up the number of units sold by 36 percent over the previous year, sales in terms of dollars lagged.

In 2001, Palm's unit share of the U.S. handheld market eroded to 58 percent from 71 percent the previous year. Meanwhile, Handspring's share grew to 15 percent from 14 percent, and Sony's share reached 6 percent from less than 1 percent.

Sony and Handspring license the Palm operating system for their handhelds. Palm once had "70 percent to 80 percent of the market. Once they decided to license the OS, they were obviously going to lose share. But they were not necessarily prepared for that," NPD analyst Stephen Baker said of the 2001 drop. "They've been fat, dumb and happy...Maybe they lost more share than they thought they were going to."

Competition from handhelds that use Microsoft's rival Pocket PC operating system also gnawed away at Palm's unit share. For example, Compaq Computer's market share grew to 7 percent in 2001 from 2 percent the previous year. And Hewlett-Packard's share reached 5 percent last year, up from 3 percent.

As for overall revenue take in the market, the Pocket PC OS continued to make headway over the Palm OS. Last year, the Palm OS revenue segment of the market was 73 percent versus Pocket PC's 26 percent. In 2000, Pocket PC had only a 15 percent portion of revenue.

Most of the Pocket PC-based handhelds are in the high-end of the market, Baker noted. Pocket PC-based handhelds "picked up a lot of units with also being able to increase their revenue share," he said. "They haven't had to go into that under-$400 range very often."

Overall, U.S. handheld unit sales reached 4.9 million last year--a growth of 36 percent over the previous year. At the same time, revenue increased only 21 percent. The discrepancy becomes clear when one looks at average selling price, which dropped 12 percent last year compared with 2000, and 16 percent in December compared with the same month the previous year.

"Why should this category be different than any other where we have a lot of aggressive pricing promotions? Those drove a lot of units. But in most categories, you didn't see a lot of positive revenue results," Baker said.

Meanwhile, worldwide shipments of handhelds declined in the fourth quarter from the same period the previous year, according to market researcher IDC. Although fourth-quarter shipments increased over the third quarter to 3.83 million units, that figure represents a 4.2 percent decline from the same period a year earlier.