The Stories Behind the Slump in Handheld Sales

Slack enterprise demand isn't the only culprit.

The handheld computer business has seen better days. According to a recent report from Dataquest, worldwide handheld shipments fell by 9.1 percent from 2001 to 2002.

Word is that slack enterprise demand for these devices is to blame. IT budgets have been tight, and most companies never quite figured out how handheld computers delivered value in their business operations, anyway.

Market leader Palms hottest selling device in the fourth quarter was its low-end, low-margin Zire handheld, while its high-end, high-margin Tungsten T device performed poorly, ranking 14th in sales in the same quarter.

Palm responded in part by slashing prices, but even after a 20 percent cut, the Tungsten T costs $400. I dont know how much further Palm can afford to cut its prices, but with Dells Pocket PCs starting at $249, the Tungsten T is still priced too high.

This is too bad, because the Tungsten T is Palms only device that sports the companys latest ARM-based, Palm OS 5 platform—not even Palms forthcoming Tungsten W communicator device will run OS 5.

Palms OS road map matters because, while home users may not care what OS their devices run, the IT buyers that Palm and its licensees need to attract, and the software developers that Palm needs to foster, do care where or where not Palms going with OS 5.

It strikes me as strange, for instance, that the forthcoming Tungsten W communicator will not run Palm OS 5, when wireless communicators and smart phones seem best suited to deliver the added functionality needed to rekindle the ardor of the enterprise.

No matter how well Palm and other handheld vendors execute on their wireless software and device development plans, however, they cant deliver these services alone.

The availability of high-speed wireless services, such as those based on GPRS and CDMA2000, has improved, but it still has quite a long way to go. Wireless carriers implement often-confusing pricing plans. Also, by substituting technology names with vague-sounding brand names, carriers tend to make it difficult for businesses and home users to figure out just what services theyre being offered.

Moving forward, mobile technology advances, such as those of fuel cells and organic light LEDs, will be sure to give handhelds a boost. Im also interested in how Linux on handheld devices, as demonstrated in the reference design that IBM showed off at Linuxworld last month, could help spur fresh mobile software development.

Senior Analyst Jason Brooks can be reached at