Palm of Whose Hand?
24 January 2002
By Ben Macklin
The global handheld device market is becoming increasingly competitive
-- just ask Palm. In the first quarter of 2001, they had over 50%
of the worldwide personal digital assistant (PDA) market. Two quarters
later, its share had shrunk to less than 30%, according to Gartner
During that period, Palm was not the only one who lost market share;
all the majors -- Handspring, Compaq and Casio -- suffered at the
hands of new competitors.
In the year 2000, handheld devices were selling like hot cakes.
According to NPD Intellect, handheld devices were the second-fastest
selling consumer electronics appliance in the US. Only DVD players
outpaced them. 2001, however, was "annus horribilus."
Demand dried up, causing excess inventory. A price war erupted between
appliance manufacturers, the technology and telecommunications sectors
hit rock bottom, and the economy went into recession.
As can be seen from the ABN AMRO data, the revenue in 2001 for
the global handheld market was only marginally better than in 2000.
2002 should be a much better year. ABN AMRO predicts revenue in
the sector to grow by over 30% from 2001, and it will continue to
grow in the proceeding years to a market worth over $7.4 billion
One result of the inevitable shakeout in the handheld market is
that market leader Palm has had to rethink its business strategy.
The realization of this change in direction came earlier this week
when they announced they had successfully spun off its Palm operating
system (OS) subsidiary. Instead of having to fight two battles from
the one trench, Palm is now able to muster its forces to compete
against Microsoft and co. with one army and the device manufacturers
with another. During the announcement of this corporate restructure,
Palm also announced that the total number of Palm-powered devices
sold had surpassed 20 million worldwide.
Yet in the battle ahead, it is likely that the success of the operating
system will be the key. In order to maintain its dominance of the
low-end consumer market as it chases the more lucrative business
market, the operating system will need to be flexible enough to
allow for entertainment and wireless web services, while at the
same time providing business people with an invaluable tool that
allows them to connect to the back office.
ABN AMRO, for one, predicts that Microsoft's PocketPC operating
system may just hold the edge when it comes to the future market.
They predict the Pocket PC OS will be shipped in more handheld devices
than Palm for the first time in 2004.
Despite its shrinking market share, Palm isn't throwing in the
towel just yet. eMarketer will keep you posted as new numbers are
Ben Macklin is a Senior Analyst for eMarketer
and the author of the Telecommunications Spending Report, the North
American Wireless Report and The Broadband Report. E-mail
him with comments, suggestions and questions.