Psion bombshell puts Palm under pressure

Psion's shocking decision to pull out of the handheld market could spell the end for arch-rival Palm, analysts are claiming today.

Keith Woolcock, analyst at investment bank Nomura, said: "It's a good move, they've bitten the bullet. They're not big enough to compete in this market, I'm not even sure if Palm is big enough for this market.'"

Woolcock claimed mobile manufacturers will take control using Microsoft-licensed software. Tim Mui, research analyst at IDC agreed. "It is not about what Psion did wrong: the market is being squeezed by ever-cheaper laptops at the high-end and Palm at the lower-end," he said. "This is certainly good news for Microsoft."

Mui predicts that Compaq's iPaq and Palm will earn equal sales in the UK this year, but added that mobile companies will provide strong competition for Palm in the consumer market.

He said that in the corporate market, Dell, HP and Toshiba will offer Palm the strongest competition.

Mui said Palm has a huge developer base and a big installed base across Europe - with Germany being a particular stronghold.

Jean-Pierre Le-Calvez, marketing director for Palm Europe, denied the company is under pressure from mobile manufacturers or MS-based devices.

He said: "We've got 65 to 80 per cent market share and we've sold 15 million devices compared to about one million pocket PC devices." Calvez added that mobile manufacturers do not have a good history of listening to what consumers want.

Asked if he could see Palm pulling out of hardware manufacturing to focus on developing the Palm operating system, Calvez said: "If and when it makes sense we would look at separating hardware and software but there are no immediate plans to do so."

Thomas Reuner, analyst at Gartner-Dataquest said: "Competition in this market will heat up and companies like Palm have nothing else to fall back on. The Palm OS is still limited for corporate use - they need to split software and hardware and focus on software licensing."