Palm, Handspring doomed by wireless?

Palm may be on the way back to profitability, but it has serious challenges ahead as wireless convergence looms, according to a new report.

In the report, Strategic Challenges In The Future Market For Handheld Devices, Denmark-based analyst firm Strand Consult predicts that Palm and Handspring will be crushed between the financial clout of Microsoft and the entrenched distribution networks of mobile phone manufacturers, once the focus in the PDA market shifts to wireless-enabled devices.

Palm and Handspring are the two largest makers of Palm OS-based handheld computers, which currently dominate the PDA market. However, the PDA market of around 10 million units a year is dwarfed by the mobile phone market, with sales of around 410 million units a year, Strand management consultant Nicolaj Nielsen noted.

"(Palm and Handspring) are going to have to compete against the power of both Microsoft and the Symbian base," Nielsen said. "They will keep on being players, but they will not win. In the long term Palm will not be a successful company."

Symbian is an operating system jointly owned by several mobile phone companies, and its operating system has been licensed by Sony Ericsson, Nokia, Samsung and other mobile phone handset makers.

Mobile phone makers have a huge, entrenched distribution infrastructure on their side, which will become ever more important as wireless is integrated into all PDAs, Strand argues. "If you go one year ahead, it will be impossible to sell any PDA without network access," said Nielsen.

For its part, Microsoft will be able to use its PDA software to draw on its established PC user base, which is already much larger than that of the Palm OS, Strand says.

Palm recently split off its operating system division and wants to focus increasingly on operating system licencing revenues, but Nielsen said it will have a difficult time finding licencees that will help it move into the all-important wireless market.

Separate phone handset and PDA markets will continue to exist, Nielsen predicted, but PDAs will generally be wirelessly connected and will be sold with network provider subsidies through the mobile phone distribution network. Network providers may begin offering packages so that subscribers can use the same wireless account for their PDA and mobile phone, Nielsen said.

Even if smartphones do not become a huge market, they will still dominate PDAs, Nielsen argued. "Smartphones will sell more than 10 million units in 2002," he predicted. "Even though the market has just started out, it's already bigger than the PDA market."

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