Handheld execs upbeat in a downpour

True, worldwide shipments have slipped 21 percent from the first quarter to the second. Palm and Handspring are engaged in a price war that analysts say could put them both in serious financial danger. And new "killer apps" that will bring in legions of new users are nowhere on the horizon.

But despite all that, executives from three leading handheld device makers were upbeat during presentations at the U.S. Bancorp Piper Jaffray conference here. The way they see it, they've only begun to tap new markets.

Now is the perfect time to look for new markets since handheld sales are declining domestically.

According to research from NPD Intelect, U.S. retail sales declined 7 percent from the first quarter to the second. But in Europe, handheld sales were up 65 percent during the first half of the year compared with the same period last year, according to Context, a research firm.

And while both Palm and Handspring beat analysts' estimates for their most recent quarters, both companies had earlier reduced their guidance. And Handspring announced it would lay off 9 percent of its work force.

Meanwhile, worries have arisen about Research in Motion's prospects with resellers of its BlackBerry two-way e-mail pager; the concern is that their inventories of the product are growing, which could mean slowing future sales for RIM.

The complexity of the market could mean that it will be another year or so before growth begins to pick up, said William Crawford, an analyst at U.S. Bancorp Piper Jaffray, who issued a new report on the wireless market.

"The market will favor those capable of addressing today's mobile reality, a hodgepodge of slow and diverse networks, resource-constrained devices and immature standards," he wrote.

Consumers have already accepted handhelds as tools for voice communications and personal information managers. The next step will be to use the devices for data messaging--e-mail, short messages and instant messages.

That's territory targeted by several companies, including traditional cell phone players. Eventually, voice and data will end up on the same device, predicts Crawford, who acknowledged that there will be a variety of devices for the foreseeable future.

"Predicting that a single device for all wireless communications is going to dominate the multiple device market is like saying that the SUV is going to put the minivan out of business," Crawford said.

But right now, companies that try to provide more than one application on a single device don't do a very good job, Handspring Chief Executive Donna Dubinsky said.

"When you choose what application (you want), you make very different decisions on design," she said at the conference. "You find that these devices tend to do the things they (were designed to) do very well, but not other things very well."

That hasn't stopped her company from trying to do more than one thing, however. Handspring's main product is the Visor handheld device, but it began offering a phone add-on, the VisorPhone, last year, and Sprint last week announced its own phone add-on for the Visor, the PCS Wireless Web Digital Link.

"The future of personal computing is also the future of personal communications," Dubinsky said. "They are really going to merge."

The battle of the brand
While consumers are waiting for voice and data to complete their convergence, the handheld makers are duking it out to get their brands firmly established in consumers' minds.

Palm Chief Executive Carl Yankowski said his company, with its line of Palm handhelds, already has an edge, boasting that his company's "unaided brand awareness is incredible."

But he acknowledged Palm hasn't done enough to sell itself to the corporate market.

"We haven't been as aggressive as we need to be in terms of marketing," he said. "The No. 1 issue I hear is, 'We think you're great, but you've got to sell us (on you) more.'"

Palm should tout its ability to handle Microsoft files, he said, especially since Palm devices compete against new handhelds are based on Microsoft's Pocket PC design.

Software developer DataViz recently announced a product that will allow Palm users to create, edit and view Word, Excel and PowerPoint files. Yankowski said the software will be bundled with Palm's m500 line. "We haven't marketed (it) aggressively," he said.

Branching out
Europe is the next place where Research in Motion's chief financial officer said its next big market could be.

RIM recently announced a deal with BT Cellnet, a wireless branch of British Telecom, to offer its service there. The companies plan to ship 175,000 units over the next 12 to 18 months.

"The folks in the UK who are most eager to get it are those who have branch offices in the U.S.," RIM Chief Financial Officer Dennis Kavelman said. RIM has also announced plans to work with Dada SpA to offer its service in Italy.

Another potential market for RIM is the installed base of Lotus Notes users, Kavelman said. RIM announced a version of its enterprise software for Lotus Domino in January. The Notes and the European markets could each double the company's addressable market, he said.