After a rocky '01, mobile-phone networks could pack some punch into PDAs in 2002.

It's been a tough year for handheld-device makers, as a poor IT-spending environment and a lack of snazzy offerings failed to drum up sales. But all that could change in 2002 when new data-friendly mobile-phone networks hit the scene and PDA players begin to introduce organizers that can send emails and short messages using the networks' quicker speeds.

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sat down with Gartner Dataquest's Todd Kort to sort out the competitive landscape and investigate the challenges that lie ahead in what could be a watershed year for the handheld industry.

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This wasn't a banner year for PDAs, but 2002 seems like it's going to be exciting. What can consumers expect in 2002?

Todd Kort: You're right, 2001 was not a good year at all for the PDA industry. The market grew about 100% between 1999 and 2000. But it only grew 10% from 2000 to 2001.

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Are you talking units?

Kort: Yes, that's in units. In 2001, we're expecting to come in at somewhere in the neighborhood of 12 million units worldwide, up from just under 11 million from last year. We're expecting roughly 20% unit growth next year.

At the same time, though, we're expecting a considerable decline in average selling prices over the next year. We think that there is going to be significant competition among the MicrosoftPocket PC vendors such that they will need to find ways to get them down below that $500 price point.

There are too many vendors at that high end of the market going after the same basic customers, and they'll have to sacrifice some of their margins in order to get down into that space to make some sales. For the Pocket PC, we're probably talking as many as 20 vendors by the spring.

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Will the Pocket PC products be able to utilize the 2.5 generation-mobile-phone networks coming out next year?

Kort: Sure, they will have add-in cards that will enable them to connect into those networks.

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And the excitement is that 2.5G networks are packet-switched and will have more efficient ways to tap into the data environment, right?

Kort: Yes, the Pocket PC 2002 operating systemprovides much better support for wireless networking than the Palm operating system does. You'll be able to do pretty attractive wireless email and wireless data transfers, so if you're updating a database from the field, it should be a fairly easy process.

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Palm announced recently that they're going to have their own email device coming out in the first quarter of the calendar year, and we'll also be seeing the Handspring Treo.


Todd Kort,
Principal Analyst,
Gartner Dataquest

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Kort: Right. The Treo product will start out as a GSM global system for mobile communicationsdevice. It will have GPRS general packet radio service, a 2.5G network capability built in, but it won't really be switched on. But it will be an easy tweak to turn it on once those GPRS services get better-established around the country. That will probably be around the middle of the year, and that is when wireless email is really going to take off.

Right now the RIM Blackberry is the only really decent wireless e-mail device, but they have got a lot of competition on the way.

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A lot of investors write me asking when Palm is going to turn around. This was a hard year for them internally, but like you said, competition is really going to heat up in 2002 externally, as we see some mobile-phone makers like Nokia introduce its Communicator in the U.S. How do you gauge the competitive threat from the mobile-phone industry for the PDA players?

Kort: I'm sure that smart phones will definitely eat into the sales of your traditional PDAs, and over time I expect there to be a very strong transition such that by the middle of 2003, probably half of all PDAs will have some sort of wireless capability. Eventually everything over $100 will have some sort of wireless data capability.

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The middle of 2003 isn't that far away.

Kort: The data services are coming along pretty well. It will be cheap to upgrade and have some kind of wireless capability. Bluetooth a wireless technology is going to come down in price very quickly by that time frame, and with that everybody will have what we call personal area networks.

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What kind of speeds are we going to see in 2002 for the new mobile data devices?

Kort: The real bandwidth that people are going to experience is probably going to be somewhere in the neighborhood of 20 to 50 Kbps, which is quite a bit lower than the theoretical bandwidth numbers that are tossed about by the carriers, which are 100 to 300 Kbps.

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Do you think they'll be able to reach those speeds?

Kort: Yes, eventually. But it's going to require new technology that they are just beginning to work on in the labs.

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You said before that you think prices will be coming down on the Pocket PC side, but wouldn't you hope that they would go up on the Palm operating system side given that this year has been such a dramatic drop for them. Won't the newer devices attract people to higher price points?

Kort: I think up until April the Palm licensees are somewhat protected, because there is quite a price delta between their flagship products -- which are usually in the low $300 range -- and the Pocket PC devices that sell for $500-plus. Especially here during the holiday season there are not that many people walking into Best Buy and spending $500 for a PDA.