Future looks to be slipping from Palm's hands

The rapid fall from grace of personal digital assistant market leader Palm is a depressing sign of the times, as if another were needed. It is also a stark warning to others.

The rapid fall from grace of personal digital assistant (PDA) market leader Palm is a depressing sign of the times, as if another were needed. It is also a stark warning to others.

Palm has just slashed fourth-quarter estimates, with sales of its devices in a tailspin. Only six months ago, Palm was boasting annual turnover of over $1bn (£69m), and was confidently expecting its 100 per cent year-on-year growth to continue indefinitely.

Now, gloomy sales forecasts have been cut in half, cash is draining away and market capitalisation is down to $3bn from a high of $53bn. Plans for a new headquarters are on hold, staff are being laid off, and a deal to increase the brand's appeal in the enterprise space by buying Extended Software has been cancelled.

Stuck in the channel mud

Palm has fallen into a classic quagmire that will be familiar to anyone who has been watching the PC market over the last decade. It has fallen horribly behind on development of new models and, at the same time, finds itself stuck with massive unwanted inventory of old kit, which it may well have to junk to protect prices. Its channel will certainly be hoping it has the resolve to take this step.

Palm's timing could hardly be worse. Its core US consumer and business markets have become price-sensitive, thanks to recessionary paranoia, which means there is no guarantee of sales picking up when its much-hyped m500 eventually ships.

Chief executive Carl Yankowski admits that delays to the m500 are "precluding the opportunity for distributors, retailers and resellers to re-order in our fourth quarter". That's CEO-speak for, "Sorry guys, we screwed up on our promises."

The faint whiff of unaffordable luxury

To an extent, it's no good blaming Palm for a change in circumstances that nobody expected. The handheld space, with its joint consumer and corporate appeal, was expected to survive any slowdown. But as the current fortunes of Palm, Handspring and even Psion prove, there's still a whiff of ultimately unnecessary luxury surrounding PDAs. If you want cut-price portable kudos, you can just buy a decent phone rather than a wallet-sized computer. And phones are only going to get smarter and more web-friendly.

Part of Palm's plight is self-inflicted. Its decision a few years ago to transform itself into a kind of handheld one-stop shop must have seemed a good idea at the time. But now a composite vendor, operating system developer, ISP and portal for handheld devices looks horribly vulnerable.

So what's to be learned? At the moment, caution is the watchword for anyone who is into handheld manufacture or resale. This surely applies to no-one more than Psion and its planned flotation of Symbian. This has already been severely delayed, but is expected in early 2002. At the moment that sounds too early. Survival is a better short-term goal for Psion and others.