National Post
(formerly The Financial Post)

February 04, 2002 Monday


HEADLINE: Microsoft's new target: wireless phones: Giant poised to compete with Palm, RIM handhelds

BYLINE: Bill Alpert

Convergence or collision? The parallel worlds of the handheld computer and the cellular telephone are converging fast. Even in the wide open spaces of the wireless market, they look to be on a collision course.

Last week, Palm Inc. finally delivered a handheld with e-mail that's 'always on' -- catching up with the feature that made the BlackBerry pager famous. Not to be outdone, BlackBerry's maker, Research In Motion Ltd., announced the April introduction of a BlackBerry that makes voice calls -- catching up with cell phone makers Ericsson and Nokia, who each offer phones with organizer features.

But rising behind these converging bodies, with the ominous percussion and brass of a sci-fi soundtrack, is the Redmond Giant, Microsoft Corp. It has already reduced the handheld vendors Palm and Handspring from novas to white dwarves, as dozens of other hardware vendors have been drawn into the gravitational field of Microsoft's Pocket PC software standard. Research in Motion and Nokia may be next.

Palm (PALM/NASDAQ) shares sagged last week to US$3.70, after reviewers gave its new i705 product a mixed reception. Without cell phone capability, Palm is behind the times. Handspring, the Mountain View, Calif., firm that licensed Palm's software for a line of handheld organizers, now bets its future on a phone-organizer gadget it calls Treo. But production delays, Treo's lack of an always-on e-mail feature for the critical corporate market, and continuing losses on lean sales of Handspring handhelds have all restrained Handspring shares to the US$6-a-share range.

The BlackBerry does have always-on e-mail, of course. And last week, RIM said the BlackBerry will soon have voice. A new product called the BlackBerry 5810 will become available this spring on networks like AT&T Wireless, featuring a headset jack for voice calls. Jim Balsillie, RIM chief executive, told Barron's the voice-enabled BlackBerrys are already selling in Britain. He adds the company has attracted carriers like AT&T, Nextel, VoiceStream and Cingular because the BlackBerry has an installed base of almost 300,000 e-mail users at 13,000 companies.

Shares of RIM (RIMM/NASDAQ; RIM/TSE) have done relatively well on Wall Street, where a good portion of BlackBerry users probably work.
Although far below the 2000 peak of US$167, the recent share quote of US$25 puts a stock market valuation of US$2.1-billion on RIM. That's five times the US$400-million to US$450-million in sales analysts foresee for the fiscal year ending February, 2003, when they expect RIM to lose as much as US$20-million, or US26 cents a share. Analysts predict RIM will reach profitability next year, earning US14 cents a share. Sustaining RIM until then is a cash hoard that topped US$650-million at the end of November.

RIM shows no fear of what it calls 'shrunken laptops.' 'The likelihood that you'll see Pocket PCs and BlackBerrys in competition is very, very low,' says Mr. Balsillie. 'Ne'er the twain shall meet.'

That's not what Bill Gates told the Consumer Electronics Show, in his Jan. 7 keynote speech. He vowed to merge phones and handhelds -- two categories that people have thought of as separate.

Demonstrated to the audience were a half-dozen phone/handheld combos from vendors as varied as Audiovox and Samsung. The Pocket PC 2002 system that Microsoft introduced with fanfare last fall is about to get an upgrade that will add wireless telephone and messaging capabilities, says Pocket PC product manager Ed Suwanjindar.

Compaq will ship a $200-$300 add-on for its iPaq Pocket PC in March that will allow voice and e-mail service; iPaq has an installed base of 1.5 million. Others plan to integrate wireless voice and messaging completely inside their Pocket PC handhelds. The first in the U.S. will probably be Hewlett-Packard, which coyly rebuffed my questions about its imminent wireless product announcement.

Along with an 'always on' ability to receive e-mails, says Microsoft product manager Suwanjindar, wireless devices should be able to synchronize data over the air. That will ensure that a user's handheld and computer share identical messages, contact lists and calendars -- and even data from spreadsheets and databases. Software initiatives by phone makers like Ericsson, Motorola and Nokia, such as the Symbian operating system, haven't gained traction. Microsoft's Suwanjindar sees no threat from Symbian-based organizer phones produced so far by Ericsson and Nokia.

Wireless carriers could gain a lot of traffic as wireless users synchronize contacts and calendars over the air, says Andre Dahan, president of AT&T Wireless Mobile Multimedia Services. All-in-one devices will have strong appeal for business professionals, Dahan predicts. But synchronization activities will force some amount of standardization on those contacts, calendars and the operating systems beneath them, the AT&T Wireless executive says. He figures a couple of operating systems will emerge as leaders.

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