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October 28, 2003
Palm, Handspring Merger Finds PDAs at Crossroads
By REUTERS

Filed at 5:04 p.m. ET

NEW YORK (Reuters) - The merger of Palm Inc. and Handspring Inc., a deal set to close on Tuesday, may mark the cruelest of crossroads for the once bubbling handheld computer market, analysts said on Monday.

The truth is, the PDA as it was first envisioned -- as nothing more than a fancy digital pocket organizer -- may be nearly extinct, they added.

``The unconnected PDA, the market potential for that is completely dying,'' said Alex Slawsby, an analyst at research firm IDC. ``Next year might be the last we see a product introduced above $100 with no wireless communications technologies built in.''

Three years ago, consumers rushed to buy personal digital assistants, or PDAs, the pocket-sized gadgets which can store thousands of appointments, phone numbers and memos.

The inventions were the favorite toys of Corporate America, where executives tapping out the Palm graffiti script into pricey PDA screens would draw envious glances in elevators.

Over 50 million ``unconnected'' handhelds have sold in the past 5 years by makers such as Palm, Handspring, Sony Corp., Hewlett-Packard Co. and Toshiba Corp.

Today, its the mailroom guys and soccer moms who are toting handhelds, and the slick executives carry new wireless devices that look more like cell phones, or thin notebook computers able to link to high-speed web access at various business sites.

Experts says that in coming years the vast majority of handheld computers shipped will boast short-range wireless technologies such as Bluetooth or Wi-Fi. Moreover, PDA functions will be found in mobile phones.

A key part of Palm's acquisition is its acquisition of the most talked about so-called ``converged'' devices -- Handspring's Treo line, which mix a mobile phone with a PDA.

THE GROWTH OF SMARTPHONES

IDC predicts that traditional PDA shipments will decline slightly this year from 12.3 million in 2002, and see minimal growth at best in 2004.

On the other hand, shipments of so-called ``smartphones'' -- mobile phones with ability to download applications and store user data -- will top 13 million this year and find annual growth of over 86 percent by 2007.

PalmSource, which licenses its software to makers such as Samsung, hopes to play a vital role in smartphones. PalmOne will face a tough road in a far bigger field of play -- total mobile phone shipments number over one billion.

The company will take advantage of Handspring's relationships with phone carriers such as Sprint, , France's Orange or Deutsche Telekom's T-Mobile. What's more, Palm is no stranger to battling bigger foes, having maintained a 40 percent handheld market share, more than Dell, Toshiba, and Sony combined.

``The kind of (growth) problem that they are addressing isn't necessarily solved by throwing lots of resources at it,'' said analyst James Faucette of Pacific Crest Securities. ``Its by being smarter than other people. That being the case, I don't know why Palm wouldn't be on equal footing.''

In fact, in a market so big, relatively small companies like PalmOne and PalmSource need only find a niche to be profitable.

``Palm is never going to displace Nokia,'' IDC's Slawsby said. ``And yet, all Palm has to do is build some presence in the smartphone space and just expand it over time -- that is all they are going to need to sustain the company and its growth.''



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