Pocket PC shortage helping Palm

A shortage of Pocket PC-based handheld devices is restricting sales, just as Pocket PC was poised to make a run at market leader Palm

Analysts said a component shortage and bad forecasting by manufacturers, who underestimated demand, has resulted in a lack of devices to go around.

"Excessive demand for PDAs is part of the problem, but it's mostly due to an under supply from manufacturers," said Matt Sargent, mobile computing analyst at market research firm ARS.

Device makers of all stripes are also wrestling with the scarcity of components such as LCD screens and memory.

The shortage comes at a bad time for manufacturers of Pocket PC-based devices. The current generation of Microsoft-powered PDAs is the first to truly compete with Palm units in terms of size, style and price. By some estimates, Palm enjoys 80 percent market share of the handheld market.

"The shortage is more of an issue for Pocket PC guys because they are on the cusp of taking off," Sargent said.

Manufacturers of Pocket PC-based devices are not being aggressive enough with their volume estimates and as a result are giving away mind share to Palm devices, Sargent said.

Compaq's iPaq is having a particular problem meeting demand. Officials said the company will increase capacity for the third and fourth quarters, but they expect the shortage to continue potentially into the final quarter.

"Part of the problem is that the iPaq is an enterprise product, so we sell a lot in large volumes," said Compaq spokesperson Nora Hahn.

Compaq has shipped over 100,000 iPaq Pocket PCs since its introduction in April. In an internal memo to employees, Compaq chief executive Michael Capellas stated that the company would increase the production of iPaq Pocket PCs to 50,000 units per month to meet customer demand.

Palm officials said the company is manufacturing more units than ever, but there aren't enough of them to meet the demand. Palm will also be releasing new units on 7 August, including a wirelessly enabled version of the Palm VII, the VIIx and a new entry-level unit, the M100.

But not everyone is admitting to shortages.

Hewlett-Packard's Jornada, which has been on the market longer than the iPaq, is not experiencing supply problems, according to the company. And Gary Schulz, director of product marketing of mobile products division at Casio, said the Cassiopeia is also not suffering supply problems and is selling more units than expected.

However, a random review of online consumer electronics sites found HP and Casio models either out of stock or available only by pre-order.

Rebecca Thompson, product manager for Pocket PCs at Microsoft, agreed that supply was short on all units, but sees the market situation as an confirmation of Microsoft's strategy to create a high-end PDA.

"What this shortage means is that there has been unmet demand and people want more than just another PIM," Thompson said.

Casio plans on releasing six Pocket PC-based models targeting new audiences by September.

Another manufacturer that isn't having as much of a problem keeping up with demand is Palm OS licensee Handspring.

"Handspring has controlled its distribution more tightly and has not overextended itself," Sargent said.

Handspring has been slowly opening its distribution channels to better manage relationships with partners. The company's Visor PDAs are only available online from Amazon.com and three major retail chains: Best Buy, CompUSA and Staples.

According to market share numbers from computer research firm NPD Intelect, the strategy is working. In May, Handspring's market share jumped 20 percent, up from nearly nothing in April.

Lisa Schmidt, manager of computer products at NPD, said that Handspring is gaining momentum and taking market share from Palm.

The market will get more crowded, as well as more constrained, later this year when Sony joins the PDA market with a Palm OS-based unit.

ZDNet Senior Writer John Spooner contributed to this story

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