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Treo release set, but field is crowded

Handspring's latest communicator is due next week, and the firm seems to be betting the farm on the gadget's success. Analysts, though, warn of soft demand.

Handspring's latest combination cell phone and handheld Treo communicators will bound out of the gate next week.

The first of the devices will be the long-awaited Treo 270, which was first mentioned during the launch of the Treo communicator 180 late last year. The device comes with a color display and the Treo Mail software allowing subscribers to the service to automatically receive e-mail that can be redirected from the subscriber's primary computer. The Treo 270 is expected to cost about $500, which is $100 less than earlier announced.

As previously reported, the Mountain View, Calif.-based Handspring is also expected to debut its $300 Treo 90 device next week, according to sources. The Treo 90 is similar in appearance to the Treo 180, but without the wireless modem. The Treo 90 will have a color screen, version 4.0 of the Palm operating system and 16MB of memory.

Handspring CEO Donna Dubinsky alluded to the Treo 90 release during the company's first-quarter earnings conference call last month, saying Handspring would launch an organizer that would fit into its communicator strategy but was not itself a wireless device.

Handspring representatives declined to comment for this story.

Both devices come as Handspring's handheld market share is slipping and as the company has watched unsold inventory of its devices build up more than inventories of its competitors' products. However, as more and more companies enter the market for wireless e-mail and communications devices, consumer acceptance has remained lukewarm.

In March, Sony and its Clie handhelds took over the No. 2 market share position from Handspring, according to research firm NPDTechworld. Palm maintains the top spot, with 54.3 percent of the retail market, followed by Sony, with 15.4 percent, and Handspring, with 14.5 percent. NPDTechworld tracks shipment numbers from manufacturers to retail stores.

Additionally, Handspring's products have started to pile up at retailers and distributors, according to a report by securities firm UBS Warburg earlier this month. Handspring's U.S. retail inventory level had grown to 14.5 weeks as of April 1, up from 11.3 weeks a month earlier and 9.6 weeks' worth a year ago.

Making the switch
Handspring's Dubinsky said during a conference call earlier this year that the company is transitioning its business and will eventually stop making traditional handheld organizers in favor of its wireless Treo communicators. The transition is expected to happen gradually for Handspring.

Underscoring the difficulty of that transition was the fairly slow start that Handspring's Treo 180 got off to. Handspring shipped 47,000 of the devices in the first quarter, the company said during its earnings call, but only about 13,000 of the devices made their way into consumers' hands.

This isn't stopping competitors from jumping in to the market. Research In Motion is the market share leader for e-mail devices, with about 321,000 subscribers to its service. In March, RIM launched its new BlackBerry e-mail gadget, the 5810, which includes phone capabilities. Palm has also added e-mail to its handhelds with its i705 device.

Though these gadgets offer greater functionality than other types of handhelds, the problem is that the "communicator market isn't all that big right now," said Stephen Baker, an analyst with NPDTechworld.

For Handspring, "this is a tough point in the development of the market to give up the...business they've built on the (personal digital assistant) side, because those kinds of volumes won't be seen in the converged market for a couple of years," Baker said.

Prudential Securities analyst Kimberly Alexy said in a research note that Handspring is betting the company on Treo's success as it slowly phases out sales of the lower-priced Visors.

"Handspring is clearly making a 'make the company' type of bet on Treo, as Visor sales will ultimately be phased out unless pricing materially stabilizes," Alexy said. "In addition to the Treo, Handspring appears increasingly willing to bet on color versus monochrome and may also be phasing out (black-and-white) offerings as well."

The ultimate goal of these product changes will be to create "a more favorable business model," Alexy said.

Handspring recently launched a trade-up program that discounts the Treo 180 by $100 for Visor customers and owners of other handheld brands.

News.com's Richard Shim contributed to this report.