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Prices already being slashed on color CE handhelds

Prices of handheld computers that are based on Microsoft's Windows CE operating system and that feature color displays have fallen dramatically over the last few weeks.

Color screens, it turns out, are so far not the answer to all of Microsoft's handheld problems.

Prices of handheld computers that are based on Microsoft's Windows CE operating system and that feature color displays have fallen dramatically over the last few weeks. Windows CE is a stripped-down operating system for devices like handhelds and TV set-top boxes.

The cuts are a function of intensified competition, relatively low sales, and expectations for upcoming products, analysts say, as well as a reflection of overall confusion in the market.

These color, palm-size handheld devices have had a tumultuous first few months. Initial sales of devices from manufacturers like Philips, Hewlett-Packard, Compaq, and Everex were delayed amid shortages of the color displays, a feature that differentiates them from previous Windows CE offerings as well as from the more popular monochrome PalmPilot from Palm Computing. Palm uses its own operating system for its handhelds, by far the most popular on the market.

Now, not long after the color-screen devices

Does size matter?
Handhelds based on the Windows CE operating system are bulkier and heavier than popular alternatives, such as Palm III or V from 3Com. Some examples:
Model Weight in ounces
Compaq Aero 2150 11
Philips Nino 510 8
Palm III 6
actually began appearing on store shelves, manufacturers are already discounting them. Thus far, HP has reduced the estimated retail price on its Jornada 420 from $519, to $449. Philips is expected shortly to discount its Nino 500 to $349. And in the most striking cut, Compaq's Aero 2130, which was introduced at $549, is being advertised for as low as $229.

"We're going to stay competitive in pricing in the marketplace," said a Compaq spokesman, declining to comment on the company's pricing strategy.

But analysts say that the price cuts are partially a result of low sales volumes, as well as the recognition that the bulky and expensive products must come down in price before becoming competitive with the Palm devices. Adding to the speculation that the devices are struggling is the fact that Everex has yet to even introduce its color palm-size device.

"It's a matter of trying to shore up a lot of volume," said Brian Phillips, a mobile computing analyst with ARS, adding that the $599 initial price for many of the color devices was "not a mass market price point."

Other than the multimedia-heavy Casio Cassiopeia E-100 and E-105, color palm-size PCs have not been received with much warmth in the retail market, he said. "The Casio [products] are doing very well. But the momentum is so strong behind Palm."

Retailers support the contention that Palm currently enjoys more market support than the Microsoft-based products.

"Palm is the hot one," said Eric Feldman, a computer dealer with Computerland of Plainview, New York. Color displays don't matter to his customers, thus most are buying the $382 Palm V, he said. "The beauty of it and the high-tech look appeals to people," he said, referring to the slim industrial design of the device. Feldman said he is selling almost no color, palm-size Windows CE devices at all.

One large online computer retailer said it was also selling almost no color Windows CE handhelds. The Palm III is its top seller followed by the Palm V, said a sales representative.

The retailer sold about 190 Palm Vs last week and has nearly 1,200 in stock, a sign of healthy demand. By contrast, the company had no Cassiopeia E-100s in stock, with seven on order and none backordered. There are 15 Nino 510s in stock, but no recent customer orders have been placed.

Other retailers told similar stories. "Palm is really our top seller," said a sales representative at a CompUSA in the Washington, D.C., area. The only problem with Palm "is that it's competing against itself," he said.

"But Cassiopeia E-100 is also doing quite well, and we can't keep them in stock," the representative said. He attributed the E-100's popularity to a fashionable design, use as an MP3 player, and a bright, vibrant screen.

New version of CE coming
Potentially adding fuel to the fire, Microsoft is expected to introduce a new version of the Windows CE operating system in the first quarter of next year, which will bring a new round of devices. This recent spate of price cuts is typical of companies getting ready to introduce new products, noted Jill House, an analyst with International Data Corporation.

"Everything is introduced at a price that drops down to increase volumes, and it usually signifies the coming of new products," she said. "It doesn't signal a lack of demand to me."

"Color palm-size PCs are meeting or exceeding expectations," she continued. "However, it's not like expectations were that humongous."

The need to keep Microsoft's devices price-competitive with Palm's products is tempered by the fact that the hardware needed to run the Windows CE operating system is more expensive than the hardware used in the Palm device.

Palm will probably always be more competitive price-wise than Microsoft, ARS analyst Phillips explains, because the Palm operating system does not require the hefty, and pricey, memory and processor that Windows CE requires.

"To get the same performance with a Windows CE device that you get on the Palm, you need a lot better hardware," he said. Color displays are also more expensive to include than monochrome displays.

Microsoft does not dispute the fact that its devices are more expensive to manufacture than Palm's, but it believes the products also serve a larger purpose than just to organize contact information.

"Typically, our components do cost a bit more," said Phil Holden, group product manager on the Windows CE team at Microsoft. "But you get a lot more for your money."

Palm prices have always been lower than Windows CE devices, but with the introduction of the $229 Palm IIIe, the company is becoming even more aggressive, such as with bundled promotions. Online computer retailer Zones is offering the Palm for $100 off when a customer opens an E*Trade account, for example.