Handheld Computer Industry Analysis

1. Handheld Computer Industry Analysis Dan Huff Kim Hebb Kelly James Margaret McKinnon

2. Background • Handheld Computers (PDAs) first introduced by Apple in 1993, marketed as the Newton Message Pad. • Evolved from handheld electronic organizers such as the Psion (1984) • First PDA’s relied on handwriting recognition programs and had calendars, address books and to-do lists. • Now… • Wireless/voice capabilities • Digital camers • MP3 players

3. Product • The PDA market can be divided into two segments. • Consumer – low cost, user friendly devices equipped for basic information storage and retrieval, i.e. address books and calendars. • Business – higher cost devices focused on business applications such as wireless email and word processing. Source: Xilinx.com

4. Demographics • Who are PDA users? • Age 21-30: 28% • Age 31-40: 31% • Tend to have higher levels of education than average • 93% have Internet access at home, vs. 58% of the general population. • Men are nearly twice as likely to have a PDA than women. Sources: Lexis-Nexis and Cyber Atlas

5. US Consumers most Popular Technology Devices • Desktop PC • Mobile Phone • Nintendo® gaming system • Sony® PlayStation or PlayStation II • Laptop PC • Pager • PDA • Sega® Dreamcast Source: Jupiter Media Matrix

6. Popular Features • Calendar / Address Book • Wireless email • Business Applications • Word Processing • Spreadsheet • Wireless Internet • Location-based services (i.e. traffic, weather, driving directions)

7. Consumer Purchasing Behavior • 53% of users purchased their PDA for themselves. • 27% received their PDA as a gift. • 20% received their PDA from their employer. Source: CyberAtlas

8. Channels of Distribution • Two Major Channels • Traditional Retail Store • E-Commerce Store Source: NPD Intelect

9. Market Sales and Growth • About 6.1 mil personal digital assistants were shipped to retailers in 2000, up 50% vs previous year; sales may reach 9.6 mil units in 2001 • 61.5 million people will be using wireless devices to access the Internet in 2003, up from 7 .4 million in the US today, according to a new report from IDC Research. The growth represents a 728 percent increase. Source: IDC Research

10. Other Market Growth Predictions • Leading computer research firm estimates that annual sales in the handheld market will more than triple from 5.4 million units worldwide in 1999 to 18.9 million units in 2003. www.cesinc.com/company/factsheet.html

11. Other Market Data • The U.S. market for handheld computers doubled to more than $1 billion. Revenues from selling personal digital assistants, such as Palm organizers and Pocket PCs, totaled $1.03 billion in 2000, more than twice the $436.5 million sold in 1999. In terms of per unit sales, manufacturers sold 3.5 million devices in 2000, over two-and-a-half times the 1999 figure of 1.3 million. NPD Intellect

12. Seasonal Data • Sales are strong for the handheld industry for the week ending 23 November in a Holiday Season that is seen critical for handheld manufacturers following a drop in demand for handheld in a year affected by the slowing down of the global economy and the US entering a recession. IDC Research

13. Market Share • The handheld computer industry has a number of competitors. • Market dominated by Palm. The Palm V is the most popular PDA. • There are constant new entrants to the market. Source: CyberAtlas

14. International Markets • Despite tighter inventory controls and aggressive pricing, the European market for handheld devices (including PDAs and Smartphones) declined 30.2% in the final quarter of 2001. This result was artificially low, however, due to high levels of shipments into the distribution channel in the same period of 2000, and full year results showed a growth of 8%. • Little Asian market information – optimistic view for general wireless market Sources: www.allnetdevices.com and IDC

15. State of Market • Palm is holding on to #1 position despite intense competition from Handspring and Microsoft • Strategic alliances with wireless phone companies like Sprint PCS are allowing faster introduction of PDA’s with phone capabilities

16. State of Market • Major price declines and consolidation in ’02 because… • More than 20 vendors vying for market share • Little to no differentiation • Weak economy • Lack of mature applications Source: Hardware Platform Market Predictions for 2002; Leslie Fiering; Gartner; 17 December 2001

17. State of Market • Competition increasing as many successful computer hardware manufacturers facing low margins are entering the market • Toshiba • Compaq • Business market segment gaining more attention • Size • Revenue growth

18. State of Market • New applications (instant messaging) are helping to drive market Source: Wireless LAN: The Next Killer Application; 17 May 2001; Mostafa Maarouf; Gartner, Inc.

19. Average Retail Price (by Brand) • Palm-$99-$399 • Handspring-Treo $399-$599; Visor $250 • Compaq-iPAQ$399-$599 • Sony-Clie $199-$449 • Casio-Cassiopeia $599 • H-P-Jordana $449-$899 Sources: Company websites

20. Seasonal Pricing Trends • The average price of a handheld sold in US retail stores during the holidays was $218 compared with about $260 a year ago. Source: The Gartner Group

21. Major Competitors • Palm-Leading manufacturer of handheld microcomputers; developer of related personal information management, operating systems, API, web-clipping and handwriting recognition. The handwriting recognition software recognizes handwriting and transcribes the written text into typed text. Also sell accessories, etc on website. Market leader, with most popular PDA, the Palm V. • Handspring-The Idea: To fundamentally change the way people organize, manage and communicate. Executive team that launched the Palm Pilot. The PalmPilot™ sold faster than the VCR, the color TV, the cell phone, even the personal computer. Now, moving from making traditional PDA’s to only making wireless-enabled handheld computing devices. Developing partnerships with platform vendors to market Treo (new wireless device) in its enterprise space. First PDA player to introduce handheld computing device with voice capabilities, in the Treo. • Compaq-Designs, manufactures, and markets commercial desktop, portable products, and consumer pc’s (among many other related products). Customers range from business interests, home users, and govt and educational users. Handheld product is iPAC. The Microsoft® Windows® Powered iPAQ Pocket PC puts the power of a desktop PC in a sleek little to-go box that gives you access to Microsoft Pocket applications like Internet Explorer, Outlook, Word and Excel. Consumer price $399 to $599. • Casio-Manufacturer of the CASSIOPEIA pocket PC. Newest model is E-200, which operates using Microsoft© Windows-Powered Pocket PC 2002 software, allows users to connect to a variety of wireless network products and accessories to create a complete mobile office environment. The E-200 includes many new features designed to improve performance, ease ofuse and optional wireless connectivity for demanding Mobile Professionals, Corporate and Government Markets. Retail Price $599.00 • H-P-Products include desktops and workstations, handheld computers, mobile products, printing and digital,storage, servers, networks, and software. The Jordana, “simplicity in the palm of your hand”, handheld and pocket pc, retail from $449 to $899.

22. Newer Entrants • Acer-Thai Computer company, launched first PDA in Thailand earlier this month. Positioned as affordable alternative Palm. Uses Palm OS 4.1 and boasts largest internal memeory capacity of any PDA with 16 megabytes. Targets 24-35 yrs, middle income, young exec’s and tech-savvy. • Sony-Holding company with subsidiaries which (among other things) develop, manufacture and sell electronic equipment, now including handheld computers, called Clie. Use Palm O/S and feature many upgrades. Retail from 199 to 449. Called personal entertainment organizer. • Sharp-Entertainment, applicances, business, mobile. Most well known for home electronics, like TV’s. New product, Zaurus, is expected to launch early this year. “The Sharp Zaurus combines state-of-the-art Sharp technology and Sharp innovation to deliver a unique and compelling PDA solution.”Will be relatively high priced, between $500-600. • Toshiba-Products include portables, DVD, telephones, storage, medical imaging, and digital cameras. New product, Genio. Current product, pocket pc e570. • Hitachi-Families of products include,consumer, electronic, industrial, power, information systems, and materials. Will enter market later this year with product based on Windows CE. Net. Will first be commericalized in Japan for corporate users. • Royal Consumer Information Products- A division of Olivetti Office USA. Unveilded the Royal Linux PDA at the this year’s CES show. Is expected to hit streets next quarter. Based on same Intel processor as Compaq iPAQ and HP Jordana. Price $299. Currently manufacture daVinci and Vista models.

23. Competitor Business Strategies • Toshiba • Direct selling to business customers • Understands the importance of wireless technology • Understands limitations of their own operating system • Making the right partnerships • Competing head-on with Compaq and is expected to overtake iPAQ • Palm • New focus on business customers • Strong operating system • Strong software customers • Strategic alliances with several handheld manufacturers • New plans for OS to compete against Microsoft’s Windows CE and Pocket PC

24. Competitor Business Strategies • Handspring • Focus on business customers • Plans to offer choice of Palm’s OS and Microsoft’s Pocket PC • Hitachi • New focus on business customers • Leveraging stronghold in Japan before releasing in US

25. Competitor Ratio Analysis (PDA Industry Only) Source: Standard & Poor's

26. Current News, etc… • Technological Breakthroughs • Instant messaging is better alternative to e-mail for most consumers • Microsoft Windows CE.net is creating next generation of programmable, intelligent handhelds • Can be connected to internet, integrate with PCs and backend servers

27. Current News, etc… • Technological Breakthroughs • Toshiba’s MPEG4 • Stream movie trailers • Traffic and weather reports • Short video clips Source: SiliconValley.com; Dawn C. Chielewski;

28. Future Outlook… • Good enterprise applications, and strong solution partners are key to survival • Growing speculation of Palm and Handspring merger in 2002 • Decrease cutthroat competition • Reduce costs • Improve shareholder value

29. Sources • www.palm.com • www.handspring.com • www.sony.com • www.compaq.com • www.hp.com • www.sharpelectronics.com • www.toshiba.com • www.casio.com • www.hitachi.com • www.royal.com • www.uscensus.com

30. Sources • Miyake, Kuriko. “Hitachi Unveils Plans for PDA,” www.pcworld.com, January 9, 2002. • Pastore, Micheal. “PDA Market Slow in Q3,” www.cyberatlas.internet.com, December 26, 2001. • Gray, Douglas F. “CES-Royal touts low-cost Linux PDA,” InfoWorld Daily News, January 11, 2002. • “Product Launch: Acer aims high with PDA,” The Nation (Thailand), January 12, 2002. • “Handspring Trips on Treo Timetable,” Communications Today, January 17, 2002. • “Handspring Plans wireless Move, Posts Q2 Loss,” ComputerWire, January 16, 2002. • Palm, Inc. Standard & Poor's Corporate Descriptions plus News, Copyright 2002 The McGraw-Hill Companies, Inc. January 14, 2002 • Ibid, Handspring.  • Hart, Tole. “Telecommunications TeleViews,” Gartner, Inc. 18 January 2001. • Maarouf, Mostafa. “Wireless LAN: The Next Killer Application,” Gartner, Inc. 17 May 2001; • Chielewski, Dawn C. SiliconValley.com.

31. Sources • “Personal Digital Assistants” DSN Retailing Today Vol. 40 Iss. 7 Pg. 31 • IDC Research – www.idc.com • www.cesinc.com/company/factsheet.html • NPD Intellect – The NPD Group www.npd.com • Stockton, Jeffrey. “Can the wireless Net Succeed in China?” www.allnetdevices.com • Pastore, Michael. “Wireless Access Devices Look Toward 2001”, CyberAtlas, February 16, 2001. • Franken, Stephanie. “Popularity of Pocket Computer Devices Soars”, Pittsburgh Post-Gazette, August 12, 2000. • Driscoll, Clement. “Are Consumers Interested in Wireless Internet Location-Based Services?” RCR Wireless News, March 19, 2001. • www.xilinx.com • “Jupiter NPD Consumer Survey,” Jupiter Media Matrix, June 2001.

32. Sources