PalmPilot in, Newton out

Next month, 3Com will release a high-end version of its market-leading personal information device, in month in an effort to cement its dominance.

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3Com is slated to release a high-end version of its popular PalmPilot personal information device (PID) next month, in an effort to cement its dominance as Apple leaves and Microsoft enters the market for the diminutive computing devices.

Tentatively dubbed Palm III, the device will come in a slightly curvier design and with an updated operating system. The price is expected to be set at $399, according to industry sources. The new operating system may include improved handwriting recognition.

The Palm Pilot III will round out PalmPilot's product line, which includes the Personal and Professional versions. The PalmPilot Personal edition will eventually be priced below $200, one source said.

Thus far, PalmPilots have dominated the market. Over 1.6 million PalmPilots have been sold, and their user base will be around 2.2 million by the end of 1998, according to Tim Bajarin, an analyst with Creative Strategies. "What I see them doing is evolving a product," Bajarin said. "They are bringing to their existing and new users a reason to purchase the next generation of their product."

3Com is also showing that the best defense against Microsoft's assault on its turf is a good offense, analysts say. The release of Palm III may draw attention away from the release of the new Palm PC devices from Microsoft, also expected to hit the market sometime in March. The PalmPCs are based on a version of the software giant's Windows CE operating system for handheld computers, previously code-named Gryphon.

Despite the popularity of the Palm Pilot, the market as a whole has grown in fits and bursts, analysts say. Few other companies have found handheld devices to be a profitable a market, as seen by Apple's decision to abandon its Newton device. (See related story)

"They want to make sure that their products match up against Gryphon-based devices, to thwart Palm PCs attacking their market," said Sherwood Research research director Nathan Nuttall.

Although the release of the Palm III will further fragment what was once considered a niche market, the strategy may pay off in the long term, Nuttall said. To date, PalmPilot has dominated the market, but with the entry of Microsoft, "They know that those prices are going to be dropping by as much as 50 percent," he noted.

"PalmPilots are far and away the leader right now. They are 'it'," Nuttall concluded. "The fragmenting of product lines leaves room for cutting prices in the future."

Both Nuttal and Bajarin said that PalmPilots will continue to dominate the market through the end of 1998, relying on the brand recognition and the dearth of software written for Windows CE. "The competitive pressure won't hit until later this year, at the earliest," Bajarin said. "It's no surprise that going into 1999, that market becomes extremely competitive."

A spokesman for PalmPilot would not confirm the release of the Palm III.