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Young handheld market set to triple, report says

The popularity of "smart" handheld devices has only begun to make itself apparent, according to a new survey, but how the market will shape up is anybody's guess.

The popularity of "smart" handheld devices has only begun to make itself apparent, according to a new survey, but how the market will shape up is anybody's guess.

Annual sales in the "handheld companion" market, which basically encompasses all handheld devices that aren't cell phones, will more than triple from 5.4 million units worldwide in 1999 to 18.9 million units in 2003, according to International Data Corp. The predictable surge partly owes to the convergence of handheld devices and wireless technology.

It's a Palm world Meanwhile, in the here and now, products from Palm Computing continue to dominate the market, while Microsoft-based Windows CE devices are still floundering.

For the first half of 1999, handhelds from Palm accounted for 70.4 percent of sales worldwide and 79.1 percent of sales in the United States. In the subcategory of palm-sized devices, Palm operating system-based products led Windows CE products by 83.5 percent to 9.7 percent.

Industry attention--along with development money and marketing deals--has increasingly focused on both the handheld space and wireless technology over the past year. As the two fields converge, devices like the wired PalmPilots and Internet-enabled cell phones are widely seen as the future of limited-use computing.

"It's an emerging market, with all types of new devices," said Diana Hwang, manager of IDC's mobile computing research program, summarizing the year thusly: "Windows CE has definitely been slow, Palm definitely continues to dominate, and smart phones have been disappointing and haven't taken off yet."

But, as in any emerging business, anything can happen, Hwang and others caution. Battles over standards could make customers shy away from so-called smart phones. Similarly, the amorphous nature of the handheld market makes it somewhat difficult to catalog and forecast, as designs and products melt into and overlap with each other.

The problem of defining the market is reflected in IDC's research. The report just released focuses on personal companions, meaning palm-size devices, and handheld companions, referring to the larger market of both palm-size devices and those with keyboards. Earlier surveys referred to the "smart handheld device market," which apparently encompasses all of the above, plus smart phones.

In fact, smart phones, or cell phones which offer limited Internet-based data as well as typical phone functions, failed to meet IDC's earlier forecasts--by a dramatic margin. In 1999, 774,000 smart phones were shipped worldwide, 39.3 percent less than earlier IDC predictions.

The disparity between the projections and the reality owes to ongoing problems with compatibility among U.S. wireless networks, as well as high prices and difficult-to-use phones, Hwang said.

"These are products that are not really sure of the user model, of what's the right design or the right infrastructure," she said, noting that the sector is still expected to heat up as technologies like WAP (wireless application protocol) and new advanced phones come to market.

Recent news, including the departure of manufacturers like Philips and Everex from the palm-size market, support some of IDC's contentions about the palm-size business. Microsoft's struggles, including its decision to launch devices based on the Windows CE operating system as "Windows Powered," have resulted in disappointing sales and market share, according to Hwang.

"Microsoft needs to figure out what is the right model for Windows CE," she said, adding that the upcoming version of its stripped-down operating system, optimized for the palm-size devices, may not solve the company's problems. "What's right on [palm-size] may not be right on other devices."

Palm, which shipped approximately 1.2 million units in the first half of 1999, is also in a somewhat precarious position as it heads into its February initial public offering. The Santa Clara, Calif.-based company has aggressively expanded from hardware-only revenues to a three-tiered business strategy focused on Internet services and software licensing as well. IBM, for instance, installs the Palm OS on most of its handhelds while Sony, among others, has agreed to license Palm's products.

At the same time, the company is finally near releasing its first device with a color display, sources say.

"They need to figure out their focus, make sure they don't alienate developers from their camp and make sure as they migrate forward that they keep everyone happy," according to Hwang. "It's a matter of execution."