IDC: Failure to communicate will doom PDAs

Handheld vendors are gearing up to meet increasing consumer demand for converged devices, or smart phones, market research firm IDC said Monday.

The market for stand-alone PDAs (personal digital assistants) has been dropping steadily for several quarters, as consumers and businesses hold off on purchasing anything other than essential technology items, IDC said. In 2003, worldwide handheld shipments will decline 8.4 percent to 11.35 million units.

However, shipments of converged devices, which combine voice and data communications, will increase to about 13 million units by the end of 2003, IDC said. Converged devices are either cell phones with data capabilities, or data-centric PDAs with voice as an application, said Alex Slawsby, an IDC analyst.

"Building unconnected devices has a short life span over the next couple of years. End users are not interested in carrying multiple devices, they want to carry one device that suits their needs," Slawsby said.

Consumers generally favor converged devices where voice is the primary application, and strong support for data applications like instant messaging and contact databases allow them to ditch their older PDAs, Slawsby said. Enterprise customers generally want their users to have access to corporate applications and databases, and select larger devices with more processing power and larger screens that add voice capabilities, he said.

The converged device market right now is too small and too young to divide into separate categories, Slawsby said. Also, device manufacturers continue to release handhelds that defy easy categorization into voice-centric or data-centric converged devices, he said.

Nokia dominates the market for converged devices, shipping 1.2 million units representing 61 percent of the market in the second quarter, as measured by IDC. The company will add more converged devices based on the Symbian operating system to its arsenal by the end of the year, and plans to sell millions of its forthcoming N-Gage device by the end of the year, Slawsby said.

The N-Gage will combine voice, data, and gaming applications into a single device expected to cost less than €500 (US$539), Nokia said when announcing the product in February.

A total of about 4 million converged devices were shipped worldwide in the first half of the year, setting the stage for a strong second half, Slawsby said. Sony Ericsson Mobile Communications and Motorola are also leaders in the worldwide market.

PDA market leader Palm plans to get into the converged device market through the purchase of Handspring, which is expected to be completed later this year. Handspring fell off of IDC's list of top five converged device manufacturers in the second quarter, but that is expected to change when the Treo 600 is released later this year.

However, hardware manufacturers will face a point in the future where revenue from hardware declines so that the business is no longer profitable, Slawsby said. For large companies like Hewlett-Packard, Toshiba, or Dell, this isn't as pressing a problem, since handhelds are only a portion of their overall business, he said.

But for companies like Palm and Research in Motion, alternate sources of revenue will be needed to keep their businesses going, Slawsby said. Those companies will want to consider licensing their technology or developing services around the hardware in order to supplement declining hardware revenues.

"It's part of the long march toward commoditization. It will be a long time before that impact is felt, but these devices manufacturers need to consider alternatives," Slawsby said.

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