Palm in fight for dominance of handheld market

By : |January 21, 2002 0

Franklin Paul

NEW YORK: It seems the gloves have come off between leader Palm Inc. and
Microsoft Corp. in the fight for dominance of the handheld computer software
market, and Palm’s David Nagel is jabbing.

Palm on Monday announced it has completed the split of its operating system
(OS) division from the rest of the company, which makes Palm-branded personal
digital assistants (PDA), the popular pocket-sized organizers.

The software unit will now report separately on the financial performance of
its licensing business, and could eventually be spun off or sold by Palm. The
Palm OS, used by the bulk of handheld computers, walks a path blazed by its
biggest rival Microsoft, whose Windows operating system drives most of the
world’s PCs.

Microsoft’s Pocket PC software powers handhelds made by companies such as
Hewlett-Packard Co. and Compaq Computer Corp. These are popular with corporate
users, known within the industry as "the enterprise," and among people
craving a smaller version of the desktop PC.

But Nagel, president and chief executive of Palm’s OS group, said Pocket PC
devices are far more pricey and plump than users need.

"Frankly, the truth of the matter is that they (Pocket PC devices) are
much bigger and more expensive products because the operating system is
bloated," Nagel told Reuters in an interview. "It has a lot of stuff
that is a holdover from the PC days that simply is not necessary in the
enterprise or anywhere else."

He said Palm enjoys "an enormous benefit from having a more compact,
more run-time efficient and frankly better operating system." His tough
talk might seem foolhardy in the face of Microsoft, the 800-pound gorilla known
for playing hardball with rivals as well as customers. But Palm, spun off in
2000 from 3Com Corp., can afford to boast, at least for now.

Palm on Monday said the total number of Palm-powered devices sold has now
surpassed 20 million worldwide after only about five years. November sales
figures from market research firm NPD Intellect showed Palm OS handhelds,
including those made by Handspring Inc. and Sony Corp., made up some 82 percent
of all handhelds sold at retail in the United States, with early indications of
another strong showing in December.

So far, Microsoft, which holds about 20 per cent of the market to Palm’s more
than 50 per cent, has been patient. Experts say the company has steadily grown
its share in the PDA market, and can continue to do so slowly leveraging its
relationships with corporations who already depend on Windows in the workplace.

"We’ve taken a fundamentally different approach than Palm," said Ed
Suwanjindar, product manager for Microsoft’s mobility group. "The choice is
between simplicity and ability. The choice is do you want a basic day planner or
do you want to do more? We are betting that people want to do more."

But consumers appeared to be more apt during the holiday months to buy Palm
and Handspring devices, spurred by discounted prices. Palm OS PDAs typically
sell for $150-$300, while Compaq’s iPAQ and other easily sell at $400-$500.

"Palm seems to have targeted the lower end of the market based around
people who want day-planner-only functionality. We are targeting the mobile
professional who wants true functionality," Suwanjindar said. "We are
super-happy and super-excited, and we think ultimately we’ll be the platform
that makes it through the day."

He added that he expected prices for Pocket PCs to fall as hardware costs
come down.

The top priority for Nagel, a veteran of AT&T Corp. and Apple Computer
Inc. is to develop Palm software so the enterprise comes calling, expanding
beyond the realm of organizers and into communications devices and other smart

Experts say the future is cloudy for the Palm OS. In November, Chief
Executive Carl Yankowski resigned, and demand for organizers has ebbed. Further,
while Palm-powered phones and entertainment devices are expected to be a hit in
coming years, there is no guarantee that they will be as popular as organizers.

Moreover, unlike Microsoft, Palm does not have a multibillion-dollar product
like Windows to fall back on.

"Overall, we believe Palm’s strategy is now well articulated and the
company is executing much better under improved leadership," J.P. Morgan
analyst Paul Coster said in a recent note to clients. "However, we believe
the competitive threat is also mounting."

Nagel acknowledged Microsoft’s dominance in desktop market, and its ability
to barge into new arenas. Still he hopes to convince users that a Palm-driven
device is an essential tool alongside their desktop PC. "We are not going
to displace Microsoft," he said. "Microsoft has a complete monopoly on
the desktop. But we want to be the best companion to the PC."

"Our strategy is, if the environment is a Microsoft environment, we are
going to work with Microsoft hardware and Microsoft documents better than
Microsoft does," he said.

(C) Reuters Limited.

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