Pocket PC Upgrade Brings Handhelds Into Their Own

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NEW YORK (Reuters) – Microsoft Corp. (Nasdaq:MSFTnews) will launch a new Pocket PC operating system on Thursday in a bid to vault into the top spot in the handheld computing market as those devices become more powerful professional tools and shed their status as pricey address books and accessories.

Microsoft’s launch of Pocket PC 2002 is the latest attempt by the global software giant to supplant Palm Inc.’s (Nasdaq:PALMnews) current dominance in the handheld computer market.

“It’s like a kid growing into an adult and getting their first job,” said Giga Information Group analyst Rob Enderle. ”The Pocket PC upgrade is targeted at a professional, maybe someone who’s going to use this instead of a laptop.”

Palm currently holds, through its own handhelds and those of companies like Sony Corp (newsweb sites). (6758.T) and Handspring Inc. (Nasdaq:HANDnews) that license the Palm OS, a 69 percent global market share. Pocket PC devices have about 17 percent, according to research firm IDC.

DOWN TO BUSINESS

With improved wireless networking and security functions, Pocket PC 2000 is aimed squarely at businesses and professionals, a battleground where Microsoft may have the edge.

“In the consumer space, the simplicity of the Palm OS and consumers’ basic needs have given Palm a competitive advantage,” said Andrew Scott, a research associate with Needham & Co. “But Microsoft is well positioned to attack the enterprise handheld market — and Palm is the underdog.”

The changes in Pocket PC 2002 include a new version of Windows Media Player, which allows handheld users to listen to music and watch video clips, a program that lets users browse files on their network via a wireless or cable connection and support for wireless standards like 802.11b and Bluetooth.

The combination of new features and tweaks may prove to be an attractive package, according to Scott.

“Palm was first,” he said, “But Microsoft often gets it right on the third try.”

MONEY, FUNCTIONS

Among the first machines loaded with Pocket PC 2000 will be Hewlett-Packard Co.’s (NYSE:HWPnews) HP Jornada 565 and 568 devices, with suggested retail prices of $599 and $649, respectively, less a $50 rebate good through the end of 2001.

The new Jornadas will be previewed tomorrow at the DemoMobile conference in La Jolla, California and are expected to ship in October.

Like most other Pocket PC devices, the Jornadas occupy the high end of the market, as devices loaded with the Palm OS can be had for as little as $100.

The higher-priced devices offer so many functions, according to Giga’s Enderle, that they constitute viable stand-alone computers.

“The thing that impressed me the most is that it’s a full Outlook client,” he said, meaning the computer can have receive e-mail without relying on a desktop or laptop computer. “These changes move the Pocket PC into what will likely be the sustaining generation of devices: they’re always on, always connected and function as a stand-alone platform.”

Industry experts predict Palm’s market share will continue to slide, with IDC forecasting parity between the Palm OS and Pocket PC by 2005.

Palm’s software is in dire need of an overhaul, Enderle said.

“Palm is going to be bringing out a new operating system … the belief is they’ll have it done by the end of next year,” he said. “But it’s hard to ship those things on time. It could take years, and Palm doesn’t have years.”

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