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Handspring grabs retail lead for handhelds

The company has the top-selling handheld computer in the retail handheld market in June, according to new data that indicate the start-up is exploiting delays at rivals Palm and Compaq Computer.

    Handspring had the top-selling handheld computer in the retail handheld market in June, according to new data that indicate the start-up is exploiting product delays and component shortages experienced by rivals Palm and Compaq Computer.

    Handspring's Visor Deluxe accounted for 25 percent of all personal digital assistant (PDA) sales in retail stores, according to market research firm PC Data, beating Palm, Hewlett-Packard, Casio and Compaq for the top slot.

    In June, the Palm Vx accounted for 16 percent of all sales. The Palm IIIxe took 13.6 percent, followed by the entry-level Visor, the Palm VII, the Palm V and the Palm IIIe.

    The numbers are a victory for Handspring, which licenses its operating system from Palm and entered the retail market only a few months ago. But the figures are more revealing of the challenges competitors face, analysts say.

    Palm's broader family beat Handspring for total market share, but Palm's problems with component shortages have not been alleviated. In addition, Microsoft's Pocket PC has not made any headway in the retail market, with the most sought-after Microsoft-based product to date, the Compaq iPaq, still largely unavailable.

    The iPaq is widely seen as the most marketable Pocket PC released, but it is back-ordered at most online retailers. Since Palm warned of component shortages affecting product availability two months ago, its more popular devices have similarly been unavailable at retailers.

    "Demand continues to be robust for Palm-branded solutions," said Alan Kessler, chief operating officer at Palm, which has not been able to find adequate supplies of certain displays and flash memory chips. "Component issues continue to be an issue. It continues to be tight."

    Handspring is clearly making the most of its window of opportunity. The Visor is the only midrange PDA in widespread availability right now, and it appears that the situation may drag on longer than expected.

    "Just about everything is severely back-ordered with the exception of Handspring," said Matt Sargent, an analyst with ARS. "Palm is still severely back-ordered across its product line. The Pocket PC guys can't get off the ground...The timing is perfect for Handspring."

    Handspring is likely primarily picking up Palm's customers, said Stephen Baker of PC Data. "When stuff is short, people don't tend to decide they're going to trade up $300 because it's not available," he said, arguing that because the Pocket PC products are priced upward of $400, they are losing potential customers who cannot find a Palm on store shelves.

    For the Pocket PC, product delays and shortages are exacerbating previous problems. "It's like they can't get any momentum," Sargent said.

    Compaq, which unveiled its iPaq in April for mid-June delivery, says the product shortages will not be alleviated until the fourth quarter of this year.

    Mike Winkler, senior vice president of Compaq's commercial computing group, said demand for the iPaq Pocket PC is much greater than Compaq had expected, with product initially available only directly from Compaq.

    "They're getting out of the retail channel, too, as well as our own DirectPlus channel. So those are getting far more readily available, even though the backlog is probably (so great) we're not going to be fully able to meet demand until sometime in the early fourth quarter," Winkler said.

    Microsoft and its Pocket PC partners may be hardest hit by the situation and slowest to recover, analysts say. The two best-selling Microsoft-based devices in June, HP's Jornadas, together took only 4 percent, PC Data found. The Microsoft camp had hoped the iPaq's sleek design and wireless capabilities would spur some momentum behind the Microsoft format, which had yet to make much of a dent in Palm's 70 percent market share.

    But with the iPaq still in short supply through the crucial back-to-school and holiday buying seasons, it's unclear what chance Microsoft will have of finally getting a foot in the market.

    For Palm's part, the company is expected to rebound. It is expected to release a redesigned low-end device, dubbed the M100, on Aug. 7. Palm has more room to coast on its previous success, according to Sargent.

    "Palm OS market share is not decreasing," he said. "This would be much more problematic an issue if the Pocket PC guys had their act together. They're equally incompetent."

    News.com's Joe Wilcox contributed to this report.