Palm Targets Enterprise Market With New Wireless Device

Palm on Monday introduced a pocket computer organizer that can surf the Web, grab e-mail and communicate without wires, hoping corporate executives will see the device as a must-have business tool and order lots of them.

The Palm i705 will sell for about $450. This summer, Palm will roll out a $2,500 server-based system that allows companies to securely transfer information to and from workers in the field. Palm will offer the device, featuring AOL Instant Messenger software, using a variety of wireless plans, including unlimited use for about $35 per month.

Santa Clara, Calif.-based Palm dominates the market for handhelds and the software that drives them. But it is seen as lagging behind Compaq Computer and Research In Motion in developing devices for corporations, where managers buy the gadgets by the hundreds or thousands as standard tools for workers.

Corporate, or enterprise, buyers, typically grab fewer total units than casual consumers looking for organizers in electronics stores. But enterprise clients spend more on each unit, boosting hardware makers' profit margins, and they buy additional services, servers or customer support contracts.

"A lot of what we are saying is a realization that what we need to do as a company is more than provide the handhelds, but also the provide the solutions around them," says John Cook, Palm's senior director of product management and planning.

That's critical for growth at Palm, which fought a price war in 2001 with Handspring, cutting prices for its most popular handheld computers while suffering slower demand as the entire market cooled.

An Industry In Transition

After five years of rapid growth, the handheld market is in transition, with manufacturers moving from making attractive devices that keep thousands of contacts to pocket-sized tools for communication and information exchange.

For example, No. 2 handheld maker Handspring next month will debut Treo, its combination phone-organizer, and several phone handset makers are planning so-called convergent devices. Nextel Communications last week announced a smart phone powered by RIM's BlackBerry technology.

But with the economy uncertain, layoffs rampant and companies cutting capital spending, experts are unsure how about the size of the communicator market, or if corporate decision markers are willing to write big checks for this new technology.

"Manufacturers are all experimenting, trying to see what functionality can go into one device, keep the form factor successful, at a price point at which people are willing to pay," says International Data Corp. analyst Kevin Burden.

U.S. Bancorp Piper Jaffray analyst William Crawford says he sees Palm selling the i705 as a means to whet the appetite of enterprise buyers, many of whom may have purchased in the past some type of handheld PDA.

"If successful, the strategy will help Palm ... move away from commodity PDA market and toward higher margins, an improved operating position, and a mobile software presence," Crawford said in a report to clients.

Challenge: Sell to Corporations

For Palm, selling the device to corporate managers won't be simple, particularly with a rival like software giant Microsoft Corp., whose Pocket PC operating system powers Compaq handheld. Palm's corporate selling plan is embryonic compared with the deep-seated relationships between corporate customers and those technology giants.

What's more, Compaq and other Pocket PC device makers can afford to seed the market by giving away hundreds of devices to their regular clients.

"They could have the best technology in the world, but if Palm does not have the channel structure to get it into the hands they want to get it into it doesn't really matter how good the product is," IDC's Burden says.

Toward that end, Palm says it has partnered with CRM software company Siebel Systems and IBM to showcase Palm devices to clients. Other alliances are expected to be announced by this summer.

Moreover, Palm says it will pitch to customers the ability to add customizable features to its devices via a memory card expansion slot, the fact that it can perform many of the application users like most about Windows-based machines, and that it can also offer non-wireless models for less than $200.

"One of the things that sets us apart from Pocket PC is that you can buy a Palm at $150 and one at $450," says Palm's Cook. "The fact that the same software runs up and down the same pipe is pretty advantageous."

Still, Palm runs the risk that companies will continue to let workers buy their own less-expensive devices, or--even worse for Palm--corporations could decide there is no critical need to move into wireless or handheld computing.

"Enterprise has been slow to develop--the IT budgets aren't there," Burden says.

Corporate demand for the wireless devices, he says, "may be a year or so down the road."

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