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Compaq prepares for new Pocket PC

Looking to boost sales of its iPaq handheld computers, the computer maker is touting that its devices are the only ones that will be ready to upgrade to the latest software.

Looking to boost sales of its iPaq handheld computers, Compaq Computer is touting that its devices will be ready to upgrade to a new version of Microsoft's Pocket PC operating system due out later this year.

Code-named Merlin, the new version of Pocket PC is said to resemble Microsoft's forthcoming PC operating system, Windows XP, according to one source familiar with Merlin. Like the current version of Pocket PC, Merlin is based on version 3.0 of Windows CE. Microsoft is introducing a new version of CE, code-named Talisker. However, the software giant has not said when that core will find its way into Pocket PC.

Phil Holden, director of marketing for Microsoft's mobility group, would not comment on the features that will be in Merlin but said both the upgrade for the iPaq and new devices running Merlin will be available in volume in time for the holiday buying season.

"It's a substantial upgrade," Holden said Thursday. "Neither Microsoft nor its hardware partners are going to let up on Palm."

Compaq's iPaq, like the lesser known @migo from UR There International, contains flash ROM that can be updated with a new version of the Pocket PC OS.

Compaq also announced on Wednesday a $50 rebate for its H3635 color-screen iPaq handheld, bringing the price of that model to $550. The 3635 includes an expansion sleeve to add a compact flash memory card, a golf game, software that allows contact information to be "beamed" to a Palm and a carrying case. Compaq did not drop the price on the more basic 3650 model, which sells for $499.

As part of its earnings report on Wednesday, Compaq said that it shipped 450,000 iPaq handhelds last quarter.

However, the three main manufacturers of Pocket PC-based handhelds--Compaq, Casio and Hewlett-Packard--still trail Palm and Palm licensee Handspring by a wide margin in the U.S. retail market for handheld computers.

Although Palm plans to introduce a new handheld with built-in wireless access later this year, Holden said Microsoft is waiting for more capable wireless networks to be in place.

"The jury is out on when you will see our hardware partners introduce integrated wireless," Holden said. Compaq has announced plans for an add-on sleeve that allows the iPaq to get wireless data access and act as a cell phone.