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Psion handhelds fall victim to a changing market

The handheld market is still booming, but Psion says it can no longer compete. The company hasn't done anything wrong, say experts, it has simply been squeezed out of its niche
Written by Graeme Wearden, Contributor

UK handheld computer maker Psion, which announced on Wednesday it was laying off 250 staff and postponing the launch of its Bluetooth kit, has been pushed out of its niche, according to experts.

The company is restructuring its digital division, and seems to be abandoning the development of new handheld devices aimed at the consumer. It blames the changes, which will cost £29m, on a "weak and oversupplied" handheld market. It is expected to concentrate on developing wireless networking products for businesses, where the margins are higher.

For its part, Psion emphasises that it is keeping its options open, and is not entirely abandoning consumer handhelds. "We're not doing anything of the sort," said a spokesman. "We'll be continuing to sell our product range, and there will be more Psion consumer products in the future."

Nevertheless, its announcement amounts to a serious retrenchment from the days when Psion competed head-on with Palm, PocketPC and others.

In some ways Psion, an early pioneer in handhelds, has simply suffered from a changing market. Experts point out that the consumer handheld market has shown strong growth in recent times, but that growth has been focused on pen-based PDAs rather than Psion's keyboard-based products.

"You could say that it's not really Psion's fault," said Tim Mui, research analyst at IDC. Mui, who believes that the handheld market hasn't yet been hit by the US economic slowdown, is predicting that the sector will grow by around 50 percent during 2001. "Psion's not done anything particularly wrong, but its niche has been attacked by other players. The growth for pen-based PDAs has been phenomenal, and will continue to grow -- while Psion has also suffered because the price of notebooks and sub-notebooks has been dropping," Mui explained.

Psion blamed the decision to stop work on a Bluetooth PDA and a range of Bluetooth connectivity kit on "the slower-than-anticipated establishment of a mass market for Bluetooth products".

Mui agrees that this excuse is genuine. "There still aren't many Bluetooth devices out there," he agrees, explaining that Psion needed Bluetooth to go well in order to balance the decline in its sales of modems.

On the other hand, Psion is not the only handheld maker with troubles. US-based rival Palm, which has the greatest PDA market share worldwide, has also been having a difficult time. It admitted in May that sales were much lower than predicted, and that it was expecting to make a loss of between £120m and £133m in the three months to June 2001.

With both Psion and Palm in trouble, there would seem to be an opportunity for other companies to take advantage of the handheld market. "Psion's withdrawal from the consumer handheld sector could be a bit rash. I think we'll see several Far East companies releasing products to fill this space in the market," said Mui, who also believes that Hewlett-Packard -- maker of the Jornada range of PDAs -- and even Microsoft could benefit from Psion's move.

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