Microsoft's one-two punch for handhelds

The software giant will announce a low-end and high-end version of its upcoming Pocket PC 2002 OS on Sept. 6 at the Demomobile conference in La Jolla, Calif., sources familiar with company's plans say. The new versions of the OS, code-named Merlin, will resemble Microsoft's upcoming Windows XP desktop OS and add 802.11b wireless networking capabilities and security.

Microsoft representatives declined to comment.

Although one source said the new versions of the OS are "incremental" upgrades to the current Pocket PC OS, another said they are exactly what Microsoft needs to stave off Palm from increasing its presence in the emerging corporate market for handhelds. Palm's OS shows up in handhelds from Palm, Handspring and Sony. Microsoft's current Pocket PC runs devices from Compaq Computer, Hewlett-Packard and Casio.

The enterprise market is the brass ring that all companies in the handheld industry are reaching for. According to research data, Microsoft has the lead in that market.

Palm maintains its lead in the overall handheld market, which is still largely made up of consumer purchases. But lately Pocket PC has been coming on strong in the small but growing corporate market because of prior relationships with business customers, according to analysts. The corporate market for handhelds has the potential for massive growth because businesses tend to buy devices in large volumes, compared with the single units that consumers purchase.

"Microsoft has an advantage over its competitors given that they and their partners, such as Compaq and Hewlett-Packard, have relationships built up from previous business," ARS analyst Matt Sargent said. "They are a natural fit to sell into that market."

Sargent added that corporations are more intrigued by Pocket PC-based devices because of their ability to expand beyond basic handheld functions, such as storing appointments and addresses.

Santa Clara, Calif.-based Palm has been trying to build a viable strategy to attract corporate customers. In late June, Palm announced several partnerships, the biggest being with accounting giant PricewaterhouseCoopers. And earlier this month, Palm announced it will acquire the intellectual property of Be. That acquisition is expected to help beef up Palm's OS with the multimedia and communications capabilities of the Be OS.

Palm was also set to acquire a mobile data management company called Extended Systems. But the deal dried up in mid-May.

Microsoft may beat Palm to the corporate punch, however, with the new versions of its OS. The Redmond, Wash.-based company is making an aggressive push for Fortune 500 companies, according to sources, and the upcoming OS will have more of an emphasis on business applications than the current version of Pocket PC.

Microsoft apparently hasn't overhauled, but rather added specific features that corporations have been asking for, such as wireless networking capabilities and security. Enterprise customers, and specifically IT managers, tend to want gradual upgrades to avoid the hassle of making major upgrades to their networks and PCs that they support.

However, Pocket PC will likely go through a major revamp if it adopts the next version of the Windows CE OS code-named Talisker. The current Pocket PC is based on Windows CE, but Microsoft representatives have declined to comment on whether Pocket PC eventually will use Talisker, which is due for release later this year.

Although details regarding the differences between the two versions of Pocket PC 2002 are not clear, sources say, the two are expected to vary considerably when it comes to storage capacity. The low-end version is expected to target handhelds with 16MB of memory, while the high-end version is expected to work with devices with at least 32MB of memory.

The new versions of the OS will also have software drivers to support the addition of 802.11b wireless networking cards and will include virtual private network software to ease the security concerns of IT managers, sources say.

The two versions will also have a similar look and feel to Windows XP. Pocket PC 2002 will also allow Outlook users to store their e-mail on their handhelds, so they can view messages even when they aren't connected to the network.

Sources say HP and Compaq will soon announce new devices that run on Pocket PC 2002.