By Chris Coyle
August 14, 2000

In an attempt to broaden its market appeal, Palm, Inc. (NASDAQ: PALM) released four new handheld computers last Monday; the m100, the Palm VIIx, and two Palm Vx Limited Edition models.

m100
The m100 is designed to satisfy the needs of the beginner and lower-ends of the handheld market, as proven by its price tag of $149, the cheapest priced Palm to date.

The m100 comes with a black faceplate, however, changable faceplates in a variety of colors than can be snapped on to the handheld can be purchased for $19.95 each.

The new device, which has 2 MB of memory, comes with a variety of applications, like a Date Book, Memo Pad, To-Do List, Address Book, Clock, as well as the new Note Pad feature.

The m100 will also have a variety of add-ons that can be attached to it, like mp3 players and cameras.

This model will replace the older Palm IIIe model.

Palm VIIx
The Palm VIIx is designed for the business and mobile professional markets. The price tag for this device comes in at $449.

The Palm VIIx, which has 8 MB of memory, will come with wireless internet access and instant messaging capablities. This product will have 40 web clipping applications included, twice as much content as its predecessor, the Palm VII. Also, with the Palm.Net service, Palm VIIx users will have over 400 web clipping applications available to them for installation to their handhelds.

Palm Vx Limited Editions
Palm also introduced two Palm Vx Limited Edition models, coming in millennium blue and champagne colors. These special Palm Vx's can only be purchased through Palm's online store and will be produced in limited quanities. The cost for the Limited Edition handhelds is $399.

Fighting off the Competition
The new fall line of Palms' is designed to compete head-on with competitors like the HandSpring (NASDAQ: HAND) Visor, a line of handheld devices based on the Palm III handheld.

The Visor, which runs on the Palm OS (operating system), has quickly grabbed sales away from Palm. According to PC Data, 25 percent of all handhelds sold during the month of June were made by Handspring, more than any other product.

Supply shortages coupled with unexpected demand at Palm have been a major cause of this. Palm has found parts like flash memory and displays hard to come by recently, opening the door to competitors like HandSpring to steal market share.

Other competitors, however, have been unable to capitalize on this opportunity due to issues of their own. Inventory problems have caused many handhelds running on the Windows CE and more recently the new Microsoft (NASDAQ: MSFT) PocketPC operating systems to be in short supply.

One of these devices, the iPaq Pocket PC, made by Compaq (NASDAQ: CPQ), has been in short supply ever since its was shipped out in June. Copmaq blames unexpected demand for its PDA as the primary reason for its problem.

The timing for Microsoft couldn't be worse. In a time where devices using its PocketPC operating system could be eating away at Palm's 75 percent market share, Microsoft and its partners (Compaq, Hewlett-Packard, Casio, and others) have to tend to inventory matters. This is unacceptable for a company like Microsoft with all its resources that is trying to gain ground from a far distant second position in the market.

Even with suppy problems, with such a lucrative market such as handheld computers and devices, which is expected to grow into a $7.2 billion business in the next three years according to Dataquest, it is only natural that more competition will come in to make their mark. Sony (NYSE: SNE), for one, will be entering the market in September with its own PDA (personal digital assistant) using the Palm OS.

However, despite the competition, Palm has some advantages over them. First, and most obvious is the fact that Palm is the undisputed leader in this space. For the year ending June 02, 2000, Palm racked up revenues of $1.058 billion. Compare that to Handspring with $101.9 million and our own Research in Motion (NASDAQ: RIMM) with revenues of $85 million and you can clearly see Palm on top of the mountain. Becasue of that, Palm has two other things that other competitors do not have: a strong consumer brand name and customer loyalty. I'm not saying that companies like Microsoft, Compaq, Hewlett-Packard (NYSE: HWP), and the others mentioned do not have strong brand names and customer loyalty. Believe me, they do; but in the handheld computer market, no company has a stronger brand name or stronger customer loyalty than Palm.

Because of this, most customers in the market for a new handheld computer will think of buying Palm first. Most people who already own a Palm will probably want to stick with a Palm since they feel comfortable with the device; it will be hard for other handheld makers to convince Palm owners to switch brands.

But, it can be done; Handspring is proving that for the moment. With the help of its short-supplied competitors, Handspring has taken significant share away from them. Customers will only wait so long before giving up and going somewhere else for their handheld needs. Whether they can sustain this momentum is up to Palm.

Why? Because this is Palm's market to lose. Unless Palm commits some serious blunders (like not working out its supply issues), they should have this market wrapped-up. This doesn't mean, however, that other competitors can't compete in this market. Handspring looks primed to take on a promising second position in the market with the strong showing of its Visor. They could be the Pepsi of the handheld world, with Palm playing the roll of Coca-Cola.

This kind of situation would further strengthen the Palm OS, since the Visor, if you remember from above, uses the Palm OS. This would also signal the nail in the coffin for Microsoft's chances of gaining a foothold in the handheld market.

Another way to play the market is to take up a niche space. Companies like Hewlett-Packard, Compaq, and Symbol Technologies (NYSE: SBL), using the PocketPC operating system, are designing their devices toward this goal. Although this could hurt the PocketPC which is trying to overtake the Palm OS by expanding its user base, it could very well help these device makers.

Another company using this approach is Research in Motion, whose wireless handhelds have become extremely popular within the corporate world, although they are now making a push toward the retail customer. The company's new national advertising campaign, which is designed to build brand name and consumer awareness of its products, is a realization that the window of opportunity is closing. They know that they must gain as much market share as possible while that window is still open, even if that means forgoing current profitability to reach that goal.

The market right now has high demand coupled with low supply. Since demand is expected to remain strong for the immediate future, the companies that can meet demand with quality products will be the winners.

Palm hopes the release of their new line of handhelds is another step in the right direction.

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