Palm losing the revenue game to Compaq

The focus of Compaq and Microsoft on the enterprise is beginning to pay off, while Palm is in danger of being left behind

Compaq Computer will topple Palm from the top spot in revenue from handheld devices, research firm Gartner predicts in a report to be released Monday.

Palm continues to hold the No. 1 position for market share and shipped more units in the second quarter than Compaq and other rivals, Gartner analysts report. However, a higher average selling price for Compaq's iPaq handheld devices will lead to significantly higher revenue for Compaq, said Gartner, adding that the shift could happen as early as the current quarter.

The data reflects the increasing popularity of handheld devices in the enterprise market -- a market "Palm has failed to put roots into," but handhelds using Microsoft's Pocket PC have done with better success, Gartner analyst Ken Dulaney said.

Gartner expects device shipments from Palm will drop significantly compared with the same quarter last year while shipments of Compaq's iPaq devices will increase. Palm shipped about 1.18 million units during the second quarter of last year, but the handheld maker is expected to ship only 622,000 for this year's second quarter. The average selling price for its devices will also drop significantly from $262 to $209 (about £180 to about £140), and overall revenue is expected to reach $145m. Revenue from hardware will hit $135m.

Compaq will ship 450,000 to 500,000 units and the average selling price for the high-end devices will be about $500, Gartner said. Revenue from the PC maker's handhelds will be in the $200m to $250m range. Compaq began shipping iPaqs in May 2000 so no comparison figures were available for the second quarter of last year.

Dulaney said he expects Compaq's iPaq handhelds to beat Palm in revenue for several quarters to come. Dulaney said that Compaq can justify the higher selling prices because its devices perform more functions, such as editing Word documents and Excel spreadsheets -- things that large businesses want.

"Palm devices have to get closer to offering what Pocket PC devices can do now, and I don't see that happening until at least the third quarter of next year," Dulaney said.

Palm has announced that it will use an ARM-based processor similiar to those used in other devices using the Pocket PC OS -- a move that should provide more horsepower to support a higher end OS. The primary provider of its processors, Motorola, announced two new processors, one based on ARM technology, for handheld devices. Palm has not announced whose ARM-based processor it will use.

Momentum is building for devices such as the iPaq, which use Microsoft's Pocket PC operating system. Late last month, Microsoft announced that in their first year of availability, shipped 1.25 million devices that use its OS. Selling to large businesses is the main reason for the high volume of shipments, analysts say. Large businesses tend to buy in large volumes whereas companies such as Palm and Handspring focus on single-device sales to individual consumers.

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