The Humble Handheld: A Laptop Killer?

High-end PDAs are making inroads among the corporate crowd

Stanford University Medical Center physician Tony Burgos often treats Web-savvy patients who know more about new drugs than he does. That's why he considers his Palm Vx as essential as a stethoscope. "A handheld for medication information, dosage, and drug interaction is invaluable because it keeps you up to speed," he says.

Burgos is hardly the only busy professional whose work has been simplified by a personal digital assistant--a fact that hasn't gone unnoticed by PDA makers. Indeed, with potentially large new markets opening up for their products, PDA makers are set to engage in battle over the lucrative high end of the market. On Oct. 28, Palm Inc. (PALM ) plans to roll out two pricey, feature-laden models aimed at business and professional users, a move being closely followed by rivals Hewlett-Packard Co. (HPQ ) and Toshiba Corp. (TOSBF ) Even newcomers Dell Computer Corp. (DELL ) and ViewSonic Corp. are trying to get in on the act.

The reason isn't hard to fathom. Through August, overall retail sales of PDAs were 8.2 million units 6.5% less than last year. But sales to enterprise markets--corporations, health-care organizations, educational institutions, and the government--have jumped 8.6% this year. And Gartner Dataquest predicts that by 2004, enterprise buyers will account for 40% of handheld purchases, up from 27% now.

Price is a big factor, too. With retail PDAs getting steadily cheaper--the average price of a Palm has fallen from $399 in 2000 to $224 today--margins can be as low as 17%. By contrast, margins at the higher end can reach 40%. Moreover, companies are more likely to buy high-end products--and to upgrade more often than consumers do. Corporate buyers, according to Angel L. Mendez, Palm senior vice-president for global operations, "are much more apt to buy the latest and the greatest."

Better margins are only part of the equation, though. With profits on hardware constantly under pressure from competition and new technologies, Dell, HP, and others see tech services--installation and maintenance, mostly--as the best way to grow in the future. To get corporate customers to buy such services, these companies hope to cement their position as one-stop shops for a broad menu of info-tech products, including PCs, servers, and--yes--PDAs.

The question, of course, is whether companies will divert a big chunk of their IT budgets on handhelds away from laptops or other gear. To win buyers over, HP, Dell, and Palm are cramming their gadgets with business-friendly functions such as built-in wireless connectivity. High-end models like HP's $600-plus iPAQ 5400 feature Bluetooth technology, which allows the handheld to connect wirelessly to printers, cell phones, and laptops over a short distance. Top-of-the-line handhelds also offer Wi-Fi, which connects to high-speed broadband in coffeeshops, airport lounges, hotels, and offices. And to help make the handheld as useful as the laptop, the likes of Palm and Toshiba Corp. are launching PDAs with faster processing speed, more memory, and better screens.

So, do cash-strapped corporations need these gadgets? For some, the answer seems to be yes. Crossmark Sales Agency, a national outsourcing sales company, recently replaced most of its field notebooks with HP iPAQs. No longer do sales reps have to lug around laptops and enough batteries to last eight hours, says Chief Information Officer Charlie Orndorff. He also notes that purchasing and support costs are half what they were for the notebooks. For its part, Volvo has issued Palms to its vehicle quality inspectors, who use them to enter and transmit data from U.S. ports to a central computer. As a result, a process that once took three weeks now takes minutes.

Sounds good, yet without such tangible benefits, many companies won't buy handhelds until the economy picks up, say analysts who track spending plans. CIOs, they say, will simply make do with existing gear. For now, PDAs are evolving into a must-have business tool primarily at companies with big delivery operations, sales forces, or large inventories to track. But handheld makers are betting that their appeal will grow.

By Cliff Edwards in San Mateo, Calif.

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