Palm Preps New Devices as PDA Market Plunges

Tomorrow, palmOne will unveil two new consumer-oriented PDA devices in a bid to continue its recent track record of releasing innovative, hip high-tech accessories. Unfortunately, palmOne's offerings will debut on the heels of one of the worst quarters in PDA history. Despite two consecutive quarters of sales growth in late 2003, PDA sales fell almost 12 percent in first quarter 2004, year over year, to 2.2 million units.
  
palmOne's Palm OS-based devices retained the top spot last quarter, with 39.4 percent of the market. HP, which sells devices based on the Microsoft platform, was number two with 24.7 percent of the market. Sony, a Palm OS licensee, was number three with 9.3 percent. Dell and Toshiba, two Microsoft licensees, rounded out the top five with 7 percent and 2.2 percent of the market, respectively. 
  
A few years ago, these numbers seemed a bit more important. But it's increasingly obvious that the PDA market is on the wane as consumers and knowledge workers move to more sophisticated multipurpose devices such as smart phones and Tablet PCs. Although palmOne still holds the number-one spot in its market, an obvious question arises: With the recent popularity of multifunction cell phones and smart phones and the rise of Tablet PCs on the high end, do traditional PDAs still offer unique value?
  
palmOne thinks so, although the company's purchase last year of Handspring, which makes the multipurpose Treo smart phone product line, suggests it wants to be ready in case the market changes dramatically. This week's new palmOne products, however, are very much traditional PDAs. The Zire 31 ($150) and Zire 72 ($300) offer color screens, improved personal information manager (PIM) applications, MP3 and photo-viewing applications, stereo headphone jacks, and expansion card slots, giving them a healthy multifunctional bent. The high-end Zire 72 also features Bluetooth networking, a higher-resolution screen, a built-in 1.2 megapixel camera, and other enhancements.
  
The question is whether these colorful, people-friendly devices can do anything to rejuvenate PDA sales. In addition to the aforementioned 12 percent drop in year-over-year sales, PDA sales plunged 33.1 percent between fourth quarter 2003 and first quarter 2004, a post-holiday sales drop that's larger than the market typically experiences. In the United States, PDA buyers are moving toward low-end products, such as the Zire family, whereas traditional business users are moving toward smart phones.
  
With its powerful Windows Mobile-based OS, which powers devices such as the Pocket PC, Microsoft was expected to eventually dominate the PDA market. But the market's move to smart phones might have forestalled and ultimately denied Microsoft that domination. Microsoft's smart phone entry, although well received by reviewers, has seen little traction thanks to resistance from traditional cell phone companies who are fearful of the software giant's motives.
  
The Tablet PC--a step up from the PDA--is poised to explode, however. Tablet PCs got off to a slow start in 2002 but recent changes to the underlying platform--thanks to the Intel Centrino mobile technology--have dramatically enhanced the devices' battery life and processing power. And a free OS update, due in late June, will improve the Tablet PC's handwriting integration. The Tablet PC market is one area in which Microsoft will no doubt dominate but it's also a traditional PC market in which the software maker has obvious advantages. And if the Tablet PC is successful, its functionality will become the prototype for all mobile PCs.