Dell Computer Corp.'s (Nasdaq: DELL) imminent entry into the handheld device market will turn the sector on its head, according to Gartner/Dataquest principal analyst Todd Kort.

The emergence of Dell's low-cost Pocket PC-based device was flagged by Unstrung in August; and its tactics of undercutting the likes of Hewlett-Packard Co. (NYSE: HPQ) looks set to cause ructions in the market (see Why in Hell Is Dell After PDAs?).

"Dell's is a fairly standard, generic unit, though with a very good display -- the main point is the pricing," Kort tells Unstrung. So what's the price going to be? "I can't say, but existing suggestions are not wide of the mark," says Kort. We reported a rumored price of $299, compared with the typical prices of $500 that HP's iPaq device and other similar PDAs retail for. "It will be so much lower than the other major vendors it will reset expectations about how much that type of PDA costs. It's targeting the iPaq, but it will lower the sales of other vendors too. People will wait to get their hands on a Dell. I don't think Dell will be able to get enough units from its Taiwanese manufacturer, Wistron Corp., to meet demand."

Such a dramatic entry (no date has been publicized yet) will see weaker PDA players exit the market, believes the Gartner guy: "Wistron was also supplying Casio Computer Co. with its PDAs, but when Casio saw what Dell was planning it decided to withdraw from the market. Others have to be concerned that Dell's entry will damage their business. Some are already in a financially shaky position. The effect won't be immediate, but some firms will find themselves in pretty dire straits this time next year."

Using, as it does, Microsoft Corp.'s (Nasdaq: MSFT) Pocket PC operating system, Dell's product will boost Microsoft's share of the PDA market in terms of the OS used. Kort's latest figures on the PDA market already show the Redmond giant boosting its market share considerably (see Gartner: PDA Sales Up 1%). In the third quarter of this year, vendors using the Microsoft OS captured more than 30 percent of the global PDA market by units shipped, up from 16.2 percent in the third quarter of 2001. Microsoft's main rival, Palm Inc. (Nasdaq: PALM), is still the clear market leader in the OS space, with its licensees, including Sony Corp. and Handspring Inc. as well as Palm itself, accounting for nearly 49 percent of units shipped in the latest quarter. Significantly, though, that shows no change from the third quarter of 2001.

Kort expects the fourth quarter to be a good one for Palm, though. The last quarter of the year is always a strong one for those targeting the consumer market, he says, and Palm's sales are 70 percent in the consumer market. "This usually increases to 80 percent in the fourth quarter."

So when will Microsoft sail past Palm in the shipped units league table? "By my calculations, not until the end of 2005," says Kort. "But in terms of revenues from PDAs carrying these companies' operating system, Pocket PC is already as large as, if not larger than, Palm." He says the introduction of the Zire PDA (see Palm Intros $99 Handheld) could lead to even lower prices but higher unit shares for Palm. "I don't know how successful the Zire will be, but that unit could be costing only $35 or so to build, and that means the price could come down to as low as $60 in time. That could boost Palm's unit sales by as much as 1 million next year."

Microsoft's growing influence on the mobile phone and handheld sector is such that the software giant now reports revenues from a unit it calls the CE Mobility group, allowing investors and others to track the growth of this increasingly important market (see Microsoft at Mobile Crossroads). Indeed, Unstrung considers Microsoft's role in wireless important enough to have dedicated our most recent monthly Wireless Oracle report to that very topic: "Microsoft Mobility Tackles Hard Issues."

But returning to Gartner, its new figures also show that total global PDA shipments reached 2.6 million in the third quarter, just 0.9 percent up on a year ago. But units shipped in the first three quarters are down 8.3 percent on 2001. As a result, fourth-quarter sales will need to reach humdinger levels if annual growth is to be achieved. (Gartner didn't actually use the word humdinger, but we're sure that's what they meant.)

— Ray Le Maistre, European Editor, Unstrung www.unstrung.com

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