Palm's New Grip on the Market

Better software and cheaper models put Pocket PC makers on notice

Times have been tough for Palm (PALM ). Growth of handheld-computer sales has stalled, low-price rivals running Microsoft's (MSFT ) Pocket PC software threaten its core markets, and the company's stock price has fallen below 75 cents. But both halves of the beleaguered company--software and hardware--are fighting back.

PalmSource, the company's software unit, has released the first fundamental overhaul of Palm's operating software since the Pilot began shipping in 1996. And Palm Solutions, the hardware maker, has a new model designed to market Palms less as a computer accessory and more as a low-cost consumer product.

The new software, Palm OS 5.0, is the more interesting development. It takes full advantage of powerful microprocessors based on a design by ARM Holdings to replace the 20-year-old Motorola DragonBall chip. In recent years, lack of computational power has limited Palms' ability to handle tasks such as map displays or database applications. The new processors will allow Palms to match Pocket PCs in performance. But another shortcoming, Palm's relatively unsophisticated networking capabilities, won't be fixed until the next version of the operating system comes out, at least a year from now.

The first Palm OS 5.0 product to be announced is a new Clié from Sony (SNE ), which uses a 200-megahertz Intel StrongARM, the same chip used in many Pocket PCs. This device, along with Palm products to be introduced soon, will boast four times as much display resolution as older models. The Palm will finally match Pocket PCs' ability to display photos and other rich graphics.

A key goal in the design of the new operating system was to ensure that the thousands of Palm programs developed over the past six years will still run. Although units won't be available for hands-on testing until later in October, it appears that Palm has succeeded.

The new Clié models cost $599.99 with a built-in camera or $100 less without one. Like other Sony high-end products, they feature a built-in MP3 player, a swiveling screen, and a keyboard. The big innovation is the addition of a CompactFlash slot on the back that can accommodate a Wi-Fi wireless network card. Sony says there will likely be other communications options in the future. One concern: the impact a power-hungry Wi-Fi radio will have on battery life.

The Cliés' other big change is that they abandon the traditional Palm practice of showing applications as icons spread across a screen. Instead, programs appear in a list that resembles the Windows Start menu. I will have a full report on the Cliés and on upcoming OS 5.0 products from Palm Solutions in a few weeks.

Meanwhile, the one fresh product announced by Palm Solutions, the Zire, is likely to be the last based on the old software. What's new here stems more from marketing than from technology. The Zire is the first Palm designed to sell for less than $100 at introduction. Palm officials insist that careful design and low-cost manufacturing in China will allow them to make money even at a $99 retail price.

The Zire's slick plastic case feels cheaper than previous Palms, as does the chintzy plastic stylus. But it is thin enough to slide into a pocket and weighs less than 4 ounces.

Cost savings take a toll in several areas. The monochrome screen is not backlit, and there are just 2 megabytes of memory. That's plenty for my 1,600-entry Outlook contact list and crowded calendar, but it would be tight if I tried to add a lot of applications. The Zire connects to a PC with a standard USB cable, as digital cameras do, which also allows the unit to recharge slowly using USB power. The Zire marks the end of removable-battery Palms.

An innovation of more interest to Palm retailers than to consumers is that the Zire comes in a blister pack, like a CD player or a calculator, rather than the traditional Palm casing. Palm hopes this will help get the Zire out of the locked cabinet of pricey computer gear and onto eye-catching self-serve displays, where its low price will inspire impulse purchases.

Despite competitive inroads from Pocket PC, Palm-based handhelds continue to dominate the market. New low-cost products and improved performance at the high end should help Palm keep it that way.


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