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Handheld sales set to double this year

The skyrocketing sales of handheld computers, which were once attractive only to geeky, affluent males, reflect the expanding market for information appliances, according to a new report.

    Retail sales of handheld computers are set to double this year, according to a new report, granting the once geeky devices mass-market status.

    Sales of personal digital assistants (PDAs) from Palm and Microsoft are surging, according to the survey by NPD Intelect, which tracks retail and mail-order sales of technology products. PDA sales for this year already equal sales for all of 1999, according to the market research firm, with a strong holiday season around the corner likely to boost the numbers more.

    The skyrocketing sales of the devices, which were once attractive only to geeky, affluent males, reflect the expanding market for information appliances that increasingly offer wireless Internet communication, games, personal information management and third-party applications. These devices and appliances are expected to overtake the PC in the next few years as the primary means of accessing the Web as well as personal and corporate information.

    "This is a product that has literally caught the fancy of people. You are not cool if you don't have one of these," said George Meier, an analyst with NPD Intelect. "And it's not a fad because it's useful. It's a changing lifestyle."

    With back-to-school and holiday buying sprees around the corner, device sales for 2000 should more than double those of 1999, NPD Intelect said. Last year, 1.3 million devices were sold in the United States, the same number sold in the first six months of this year. At the same time, total sales in 1999 accounted for $436.5 million in revenue, while revenues for the first half of 2000 hit $406.9 million.

    The revenue discrepancy is explained by a small decrease in the average selling price of these products. The average price of a PDA sold in June of 1999 was $350, compared with $324 this June. That relatively small drop is a result of strong demand paired with component shortages that continue to plague the device industry.

    In recognition of this broadening of the market, Palm, Handspring, and Microsoft and its partners are aggressively marketing new devices to the more general consumer market, NPD Intelect said.

    Market leader Palm is the primary beneficiary of the trend, taking 65 percent of the retail market. Start-up Handspring, whose Visor device is based on the Palm operating system, is next with 21.6 percent of the retail market in its first six months on store shelves.

    "The Visor is good looking, but more importantly it's got that slot on the back that allows it to morph into almost anything," Meier said. "Here's a PDA that morphs into anything you want-- and they came in at a hundred dollars less."

    This morning, Palm shares rose $2.32, or about 6 percent, to $40.25 and traded as high as $40.50. The company was rated "recommend list" in new coverage by analyst Vik Mehta at Goldman Sachs. In addition, Pacific Crest Securities analyst James Faucette initiated coverage of the company with a "buy" recommendation.

    Devices based on Microsoft's Pocket PC operating system for handheld computers continue to struggle. Despite the software giant's marketing heft and rejiggered software, Pocket PCs from Casio and Hewlett-Packard took a little over 4 and 3 percent of the market, respectively.

    This year's boom is reflected in the fortunes of handheld makers. Handspring and Palm, which recently spun off from parent company 3Com, both went public this year in highly anticipated offerings. Palm raised $874 million in its IPO, and Handspring took in $200 million from its offering.

    Both companies' sales have surged this year. In its first quarterly earnings report as a public company in June, Handspring announced quarterly revenues of $51.8 million, a 51 percent jump over the preceding quarter's $34.3 million in sales.

    Palm said in its earnings statement in June that it shipped 1.1 million units in the second quarter of this year. The company's sales rose to $350.2 million for the quarter, up from $174.3 million for the same time last year.

    The market is still young, however, and this type of skyrocketing growth will not continue forever, Meier noted. "Right now, there's a lot of heat and light around it, but all products at some point get down to reality," he said. "Once it gets over that hill, then it gets down to selling and marketing."