The first quarter of this year was the best of times for the handheld computing market, but among the worst of times for longtime market leader

palmOne

(PLMO)

.

Global shipments of personal digital assistants jumped 25% in the quarter from the same period last year to 3.4 million units, according to new research from Gartner. That was the fastest worldwide sales growth ever recorded, the industry consulting firm said.

While the overall industry grew, palmOne's position in it shrank dramatically. The company's worldwide PDA shipments fell 26% year over year to 614,750 units.

That gave the company about 18% of the global PDA market, its lowest share since entering the market in the mid-1990s and dropping it into second place behind new market leader

Research In Motion

( RIMM).

RIM shipped 711,000 PDAs in the quarter, up 75.6% from the first quarter last year, boosting its global market share to 20.8%.

palmOne has dominated the PDA market since launching its original Pilot in the middle of the '90s. The company long touted the simplicity of its devices, but it has been gradually losing share to more sophisticated products from the likes of RIM and companies such as

Hewlett-Packard

(HPQ) - Get Report

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that use

Microsoft's

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Windows Mobile operating system.

Though it's still in the PDA market, palmOne has shifted its emphasis to its series of Treo smartphones. Gartner's PDA data do not include smartphone sales.

The report was also bad news for palmOne's former sister company

PalmSource

( PSRC), which makes the Palm operating system. The Palm OS was installed on 684,750 PDA units shipped in the first quarter, down from 1.1 million units installed in the first quarter a year earlier.

That decline meant that the Palm OS's share of the market fell from 40.9% a year ago, giving it a slight lead over Microsoft's PDA OS for first place, to just 20% of the market in the just-completed quarter and a third-place finish.

In contrast, Microsoft's Windows Mobile OS came installed on 1.6 million PDAs shipped in the first quarter, up 43% from the same period a year earlier, making it the market leader with 46% share. RIM's operating system was preinstalled on 711,000 units shipped in the quarter, up 75.6% year over year, and putting it in second place with 20.8% share.

To be sure, palmOne's -- and partner PalmSource's -- sales and position could rebound in coming quarters. palmOne's primary PDA customers are consumers; as with most consumer-oriented companies, the first calendar quarter is usually a slow period for the company's products. In contrast, Microsoft's partners and RIM largely have been targeting corporate customers whose spending habits tend to be somewhat less seasonal.

As recently as the fourth quarter, palmOne still held nearly 30% of the global PDA market. New product releases could help the company's position. In April, palmOne released a long-awaited update to its popular Tungsten E model line.

In recent trading, shares of palmOne were off 37 cents, or 1.6%, to $23.50; PalmSource shares were off 11 cents, or 1.2%, to $8.96. In contrast, shares of RIM were up $3.16, or 4.9%, to $68.10, and Microsoft's stock was up 2 cents, or less than 1%, to $25.23.