HANDHELD COMBAT HAS PALM LOST ITS GRIP?
For years Palm ruled the handheld sector, racking up 70 to 75 percent market share against rivals like Microsoft’s Windows CE devices.

No more. Last year, Compaq’s CE-based iPAQ and Microsoft’s much-ballyhooed Pocket PC 2002 went hand-to-hand with Palm and knocked its market share down to 40 percent in the second quarter. Then Palm’s stock lost 90 percent of its value, in part because of sluggish Palm VII sales, new-product delays, and lack of innovation, leading to the resignation last fall of CEO Carl Yankowski.

Nobody’s predicting the death of Palm. But analysts say the one-time king must stop the bleeding this year.

“Palm needs a new operating system as fast as possible,” says Todd Kort, principal analyst for Gartner Dataquest’s computing platform group. Palm’s OS 5, which will enable its handhelds to run on the same fast chips used by the Pocket PCs, should appear by the second half of this year. Kort says the company must handle the rollout carefully, lest word of the impending release freeze sales of existing Palm devices.

The research firm IDC predicts that by 2005, Palm and its Windows-based rivals will enjoy roughly equal market share. IDC’s Alex Slawsby says that to stay ahead of the pack, Palm “needs revolution, not evolution. They must innovate as if the company’s future is in danger.”

Writing on a discussion board at PDAbuzz.com, a Palm devotee calling himself Foo Fighter couldn’t agree more: “Palm’s entire future hinges on OS 5. If it turns out to be vaporware, so will Palm.”