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Microsoft extends hand on low-cost PDAs

The software giant teams up with Samsung to develop a design for low-cost handhelds, a market dominated by rival Palm.

Microsoft and Samsung on Monday announced they have teamed up to develop a design for low-cost handhelds, a market dominated by rival Palm.

Devices based on the design will use Microsoft's Pocket PC software and Samsung's 200MHz ARM9-based S3C2410 application processor and will have 32MB of memory. The design also calls for a 3.5-inch color or black-and-white display, Secure Digital and SDIO support, and a petite 4.1-inch-by-2.8-inch, 2.9-ounce case.

The announcement with Samsung underscores Microsoft's recent emphasis on the low-end market. The software giant and its hardware partners have traditionally offered devices with advanced features to the corporate market, where prices tend to be in the $500 range. The high end of the market is a smaller segment compared with the low end, but profit margins are larger.

However, prices for components have begun to drop, and Microsoft has signed up more licensees--around 30 so far--that see an opportunity to sell high volumes in the low end of the market. Hardware makers such as Hewlett-Packard and ViewSonic are dipping into the $299 price range, and Dell Computer is set to announce a $199 Pocket PC-based device Nov. 18.

"The last outpost for us is the low-cost category," Microsoft spokesman Ed Suwanjindar said. "A poor customer experience was the only aversion to the low end, but with component costs coming down, we can now offer advanced features for lower prices."

Microsoft said the design is meant to help PDA (personal digital assistant) makers offer lower prices and get the devices to market faster than if they had to develop them on their own. Devices based on the design aren't due out until next year.

Shipments for handhelds dipped 2.4 percent worldwide in the third quarter,

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according to research firm Dataquest. Devices using the Palm OS accounted for 50.2 percent of the worldwide market in 2002, compared with 28.3 percent for handhelds using Microsoft's Pocket PC operating system.

Semico analyst Tony Massimini said that reference designs give manufacturers a starting point when it comes to building a device. However, it's not historically clear if reference designs spur growth or if growth spurs reference designs. "It's similar to a chicken and egg thing," he said.

Massimini added that Samsung is reducing the number of chips used in the design by combining capabilities into fewer chips, which helps to cut costs.

Samsung representatives were not available for comment.

Microsoft also has design agreements with Texas Instruments and Intel, but those deals are for devices with wireless capabilities.