Updated from 12:37 p.m. EDT
Bells and whistles and gadgets have captivated the attention of handheld computer makers over the past few months. But for
, its latest organizer, an updated but stripped-down organizer called the Treo 90, which targets the first-time buyer, may be its best shot at reaching profitability by the end of this year.
In a way, the Treo 90, which includes a color screen, keyboard, and for the first time, a Secure Digital expansion slot, and which retails for $299, is a small concession that it can not yet abandon the market that helped them swell from a seedling in
expats Jeff Hawkins and Donna Dubinsky's minds to a No.2 contender for the handheld crown. In January, co-founder Dubinsky shocked investors after announcing it planned to transition the product portfolio away from standalone organizers, betting the bank on the hope that consumers are looking for devices that converge wireless data, voice and organizers. Very quickly, Hawkins revised those statements, explaining that the company did not intend to drop entirely the Visor line, but rather, focus its growth on wireless-enabled products.
All of this makes today's announcement, while not entirely unexpected, a bit of a head-scratcher. The answer lies in part on addressing consumer spending habits and in particular on how to do it without losing its shirt. While handheld makers continue to pack more features -- and cost -- into their devices, studies show that lower-priced models continue to account for most of the sales. In March, nearly 90% of handheld retail sales came from PDAs priced under $400, according to NPD.
addressed the market in the spring with the launch of its m130 color handheld. Even the typically higher-end and higher-priced PocketPC camp is scraping the bottom end of the market for sales? Toshiba launched its under-$400 e310. Handheld manufacturers have come to realize that consumer adoption of next-generation do-it-alls have been slow, owing partly to the slower-than-expected deployment of next-gen wireless services. Since launch, Handspring said it has shipped 47,000 units to retailers, but only 13,000 have actually sold to consumers.
While there's certainly a demand for plain-vanilla models, Handspring has been struggling with abysmal margins on the only products it had on tap to sell to the segment, its Visor line. Mindful of these figures, Handspring realized that its product line did not adequately prepare it to pursue these first-time buyers profitably. While the company declined to give out specific figures, gross margins on the Visor line, that is, the lower-priced organizers that do not include wireless functions, were in the low- to mid-teens, according to a Handspring investor relations spokesman. Several rounds of price cuts have eroded those profit margins, once in the vaunted thirties. With the Treo 90, it's hoping that it can still court the first-time buyer, but increase those margins beyond the estimated mid-teen percentages that the Visor line currently commands. At the same time, the company is hoping the first-time buyer will eventually be lured to its higher-margin offerings including the Treo 180 and 270. Whenever that happens is anyone's best guess.
Overall, Handspring is hoping to bring company-wide profit margins (on both consumer and high end products together) back to the once high-thirties. They'll need all the help they can get, considering their current projections call for a product-line-wide margins in the mid-twenties. The company revised its revenue forecast in April, nearly halving its original $90-plus million to between $47 million and $56 million, with analysts expecting about $52 million. Handspring is aiming for profitability by the end of this calendar year.
Indeed, analysts said the new product aimed at first-time buyers is being viewed as a short-term endeavor to help it get over the hump of declining growth in handheld sales for the this year, and that it should not be seen as a long range objective. "I expect them to gradually withdraw from
the first-time buyer segment," said Charles Wolf, an analyst at Needham & Company. "The margins are very low and it's not a good investment on their part. We'll see over time, it will be ceded to Palm itself." Needham has no banking relationship with Handspring.
Handspring, meanwhile, is not so quick to write off first-time buyers just yet. "We think there's still a good market for standalone organizers," said Handspring spokesman Brian Jaquet, answering a question about whether consumers should expect to see more lower-priced products. "We'll see what the kind of reaction we get to this one, as we're making decisions everyday about the future roadmap. We're going to be analyzing a lot of things in the next several months."