PDAs & Smartphones

INDUSTRIAL CODES

NAICS: 33-4111 Electronic Computer Manufacturing

SIC: 3571 Electronic Computer Manufacturing

NAICS-Based Product Codes: 33-41117015

PRODUCT OVERVIEW

Personal digital assistants (PDAs) are handheld computers originally designed to manage the personal information of the user. Since their introduction in the 1990s many features have been added, including calculators, video games, and Internet Web browsers. The devices can also be used to check e-mail, create and manage spreadsheets, store phone numbers, appointments, tasks, and notes. They can also hold maps and city guides and display photos. The most recent models, as of 2007, have wireless capabilities, which allow them to act as Global Positioning Satellite (GPS) devices, mobile phones (smartphones), or portable media players.

The popularity of the personal digital assistant has sparked some confusion in terminology. A PDA is sometimes referred to as a handheld computer or a handheld personal computer. Two popular brands, the BlackBerry and the PalmPilot, or just Palm, are used interchangeably by some people to refer to the entire PDA category. Microsoft uses the term handheld PC to refer to any computer smaller than a laptop. Some people refer to handheld PCs as palmtops.

PDAs are about the size of a deck of cards. They have black & white or color liquid crystal display (LCD) screens. Users access the PDA's various functions by using a stylus (pen) and writing on the screen; all PDAs employ some form of handwriting recognition software. Users can also tap on the keyboard or scroll through the menu to access functions. PDAs come with expansion slots, which allow the device to be programmed with extra functions, such as GPS. The device comes with a port so that its battery can be recharged; the first PDAs, however, ran on standard alkaline batteries. PDAs can be synchronized with a user's home computer; that is, information can be passed between computer and device.

In the 1960s IBM shipped its first computers to corporate and university labs. By the 1970s manufacturers produced electronic dictionaries, language translators, and calculators with other functions integrated into them; clocks, alarms, and calendars, for example. The first electronic organizers were released in the 1980s by Matsushita, Casio, Hewlett-Packard, and other manufacturers. Two of the more successful models came in the second half of the decade, when Psion released the Psion Organizer in 1984 and Sharp released the Sharp Wizard organizer in 1988. The organizers from this period all incorporated some version of common PDA features, including small keyboards and display screens, an alarm clock, a calendar, a telephone pad, and a calculator. In the 1990s several companies introduced popular PDAs, including the Apple Newton, the PalmPilot, and the BlackBerry.

Apple's Newton

Apple Computer released the Apple MessagePad in August 1993. It ran on Apple's Newton operating system and featured 640 kilobytes of random access memory (RAM), 3 megabytes of read-only memory (ROM) that stored applications, and a low-voltage 20 megahertz 32-bit ARM 610 microprocessor. It also included a 240×336 resolution (85 dpi) 2.8 × 4-inch LCD screen, one PCMCIA Type II expansion socket, and a data transfer rate of 9,600 bits per second. It ran on four AAA alkaline batteries.

The MessagePad was often called the Newton because of the operating system on which it ran. The key features of the Newton were its ability to send faxes and emails, its built-in personal organizer applications, its calendar, and its ability to recognize and interpret words written on its screen. It is most remembered for its handwriting recognition software Calligrapher, which was licensed from the Russian company Paragraph International. Calligrapher could parse a written sentence and make predictions about what the user was writing based on a programmed database of words. It could sort names and dates in a sentence so that they could be filed into a user's address book. However, the software was temperamental, and it generated some scorn among the press and a memorable weeklong bashing in Garry Trudeau's Doonesbury comic strip.

The PalmPilot

Jeff Hawkins, Donna Dubinsky, and Ed Colligan of Palm Inc. introduced the first Palm devices, the PalmPilot 1000 and PalmPilot 5000, in March 1996. The original PalmPilot 1000 ran on a Motorola Dragon-ball 68328 16 megahertz processor, had 128 kilobytes of memory and a 160×160 pixel, 4-shade monochrome screen. It could run for a few weeks on two AAA alkaline batteries. The Pilot 1000 handheld could store 750 addresses, one year of appointments, 100 to-do items and 100 memos, and perform all of the standard personal organizer functions. The Pilot 5000 supported five times as much data. Palm sold more than 350,000 units by the end of the year.

Fearing confusion between the PalmPilot and its trademarked Pilot pen brand, Pilot Pen took Palm Inc. to court in 1998 over copyright infringement. Palm agreed to change the name of its new PDA. The PalmPilot was renamed the Palm.

The Palm quickly overtook the Newton in terms of market share. Market tracking firm PC Data reported Palm had 88 percent of the PDA market in 1997. In the larger handheld market, which comprised both handheld computers and PDAs, Palm had 66 percent to Newton's 6 percent, according to Dataquest, another computer industry tracking firm. Its operating system PalmOS took nearly three-quarters of the market in 1998, according to International Data Corp. There are several reasons the Newton was not successful. Several analysts have pointed out that the device was poorly marketed. It was also too thick and awkward to be easily carried around in a shirt pocket as originally intended. The database storage structure made it difficult to synchronize with the file-based system of a user's home computer. Cost was a factor as well. The cheapest Newton eMate, a larger, less feature-rich version of the MessagePad, was $800, and the MessagePad was more than $1,000. PalmPilots were $300-400.

Despite this, the Calligrapher handwriting program is still much admired and thought to rival Palm's handwriting software, known as Graffiti. Apple discontinued the Newton and its operating system in 1998. However, the Newton still had a sizeable group of devoted users in 2007.

Microsoft

Microsoft made several unsuccessful efforts to bring their own handheld device to market, including the WinPad Handheld PC and Pulsar. Microsoft began an effort to copy the Newton in early 1995. The project was called Pegasus. Two years later, Pegasus was named Windows CE. Windows CE supported most of the same functions as the regular Windows operating system and was designed to run on a device with minimal storage as PDAs with hard drives were not available until 2004. Microsoft released Windows CE in November 1996 for PC Companions, a term used rather than PDA, which at the time was still associated with the Newton. A total of 430,000 Windows CE-based devices would be shipped in 1997. In 1998 the operating system had 14 percent of the market, according to International Data Corp, far behind the PalmOS with 73 percent.

In 1998 Microsoft planned to launch its handheld computing platform under the name Palm PC. Palm Inc. filed suit against Microsoft, forcing it to modify its product name to Palm-size PC. This effort into the handheld PC market was not successful either, due largely to the device's price and connectivity issues. It was noteworthy, however, for improved sound, higher-resolution screens, and color displays. In 2000 Microsoft released Pocket PC, its new handheld device platform. Pocket PCs ran Windows CE 3.0, and some Windows software applications (Internet Explorer, Word, and Excel) that are part of the large desktop package. The Pocket PC also included handwriting recognition, an e-book reader, wireless Internet, and longer battery life. In spite of its improvements, Microsoft remained a distant second to Palm. At the end of 2000, Palm OS had 79 percent of the operating system market while Windows CE/Pocket PC had only 13 percent, according to International Data Corp.

BlackBerry

Mike Lazaridis, president and co-CEO of Research in Motion, Ltd. (RIM), invented the first BlackBerry in 1999. The BlackBerry perfected email, text messaging, and other wireless functions. It included a built-in keyboard and a wheel on the device that could be used to scroll through various menus or activate certain functions.

Lexicon Branding is responsible for giving the BlackBerry its name. One of Lexicon's naming experts thought the miniature buttons on RIM's product looked like the seeds of a strawberry. Reportedly, a strawberry was too slow sounding so the naming experts settled on BlackBerry.

One of the keys to BlackBerry's success was the creation of a "one mailbox" solution. Business people typically had to check two e-mail accounts: a corporate one they could only check using a desktop computer and a wireless one. Using the company's own proprietary devices and its own middleware software, the company retrieves e-mail from both accounts, encrypts it, and sends it to connected devices. BlackBerry subscribers are also given the option to create an e-mail account with BlackBerry. The success of this service has been a vital part of business communications. The device also offered all the standard personal organizer features, including GPS, wireless services, and photo storage. Workers now became always reachable and always connected to the office.

On November 13, 2001, NTP sued RIM for patent infringement. It claimed RIM had violated five of its patents in the creation of the BlackBerry's radio-frequency wireless communications e-mail system. A federal court issued an injunction to shut down the BlackBerry service in the United States in 2003, affecting millions of subscribers. RIM agreed to settle with NTP for $612.5 million on March 3, 2006. Part of the settlement granted RIM a license to use NTP's technology.

Smartphones

Just as the PDA technology was finding favor among consumers, manufacturers were working on the next generation of the technology. IBM released the first smartphone, the IBM Simon, in a joint operation with BellSouth in 1994. A smartphone is a handheld device designed to offer complete phone functions while also operating as a PDA. Smartphones function as phones first and data managers second. The wireless phone had been on the market for a decade in 1994 (the first commercial model was available from Motorola in 1984). By combining a PDA and a wireless phone, manufacturers took communication possibilities to the next level. In short, instead of simply transmitting voice, phones could now transmit data. By 2007 most wireless phones were so multifunctional that the line between smartphones and cellular phones was blurred considerably.

Analysts offered gloomy forecasts about the state of the PDA market. They expected the market to be overshadowed by smartphones and other devices with multifunction capabilities. Smartphones were performing very well—according to Gartner Group global smartphone shipments grew 75.5 percent during the first six months of 2006 over the same period in 2005, accounting for 34.7 million units. PDA shipments grew a mere 5.7 percent over the same period. Smartphones outsold PDAs in every market except North America.

Smartphones represented only approximately 2 percent of wireless sales in North America in 2006, according to media tracking firm NPD Group. It was unclear why the technology had not caught on in this region. One reason may be screen size. PDAs have large screens, while the small screens on smartphones make them difficult for managing data. One analyst at Current Analysis pointed to the curious distinction that Americans upgrade and replace their computers more regularly than Europeans. Europeans, however, update their phones much more regularly than Americans. There were some practical reasons for this: possibly losing a current phone number, the expense of a new phone, and hassle of getting new service. There are also some psychological reasons; some people become very attached to their PDAs and phones the way some men do to their cars or some women to their purses. Consumers in North America will no doubt one day embrace smartphone technology. The PDA market was expected to shrink but not necessarily vanish. According to research firm In-Stat three-quarters of all smartphone owners also carry a PDA.

MARKET

According to statistics from Gartner Group, 13.26 million PDAs were shipped worldwide in 2001. Shipments declined in 2002 and 2003 to 12.06 million and 11.45 million units, respectively. The decline has been attributed to a number of factors. Some people made the switch to the smartphones that had just come on the market. BlackBerry's legal problems had just begun; some people hesitated to adopt a technology that might soon be shut down. The industry recovered in 2004, with shipments increasing to 12.5 million. Total shipments were 14.89 million in 2005 and 17.7 million in 2006. By 2008 the total number of shipments was expected to increase to 27.5 million.

Research in Motion's (RIM) shipments increased 10 percent from 2005 to 2006. Its product mix shifted more toward smartphones. In the last quarter of 2006 the company shipped 1.8 million BlackBerry devices with approximately 915,000 considered to be PDAs and the remainder smartphones. Palm's shipments dropped 29 percent as it shifted its attention to its Treo smartphone. Hewlett-Packard's shipments were down 24 percent as it shifted focus elsewhere. Sharp's shipments increased 166 percent, largely because of the success of its Sidekick model, marketed by T-Mobile.

Despite increased shipments in 2006, RIM's market share dropped from 21.3 percent in 2005 to 19.8 percent in 2006. Palm had an 11.1 percent share in 2006, down from 18.5 percent in 2005. Hewlett Packard's 9.7 percent share was a drop from its 15.1 percent share a year earlier. Of the top five companies, only Mio Technology and Sharp increased their worldwide market share from 2005 to 2006. Mio Technology had a market share of 8.5 percent in 2006, up from 4.8 percent in 2005. Sharp's market share in 2006 was 8.0 percent, up from 3.6 percent a year earlier.

Windows CE was the most popular operating system, with 56.1 percent of shipments in 2006, an increase from its share of 47.9 percent in 2005. RIM's share fell from 21.3 percent to 19.8 percent. Palm OS fell from 19.8 percent to 11.7 percent. Symbian lost market share as well, with its share declining from 6.7 percent to 5.4 percent. Linux's share increased slightly, from 0.8 percent to 0.9 percent.

KEY PRODUCERS/MANUFACTURERS

Research In Motion Limited (RIM)

RIM is a designer, manufacturer, and marketer of wireless devices and software. Its products allow users to access email, make phone calls, text message, and organize their personal and business information. RIM also provides solutions for Internet- and Intranet-based corporate data applications. The company's products, services, and embedded technologies include the BlackBerry wireless platform, software development tools, radio-modems, and other hardware and software. It also licenses its technologies to various third party developers and manufacturers in order to improve their products and services with wireless connectivity to data. RIM currently offers BlackBerry e-mail service to non-BlackBerry devices, such as the Palm Treo, through the BlackBerry Connect software. This email service has proven to be very popular. According to BlackBerry, 321,000 people subscribed to the service in 2002. By 2006, the subscriber base had climbed to 4.9 million. In 2006 the company generated revenues of $2.06 billion and employed more than 4,700 people. The company was founded in 1984 and is headquartered in Waterloo, Ontario, Canada.

Palm Inc.

The PalmPilot was invented by Jeff Hawkins, Donna Dubinsky, and Ed Colligan. The original purpose of Palm Inc. was to create handwriting recognition software for other devices, but their research convinced them they could create better hardware as well. The company's offerings include Palm Treo smartphones, Palm LifeDrive mobile managers, and Palm handheld computers, as well as software, services, and accessories to complement their products. The company generated $1.9 billion in revenues for its fiscal year ended May 2006. It employed more than 1,100 people. Palm, Inc. was founded in 1992 as Palm Computing, Inc. and changed its name to Palm, Inc. in 1999. It changed its name to palmOne, Inc. in 2003 and back to Palm, Inc. in 2005. The company is headquartered in Sunnyvale, California.

Hewlett-Packard Company

Hewlett-Packard provides personal computers, servers, storage devices, printers, and networking equipment to consumers, businesses, and governments worldwide. Hewlett-Packard employed 156,000 people and generated revenues of $91 billion for the fiscal year ended October 2006. Hewlett-Packard's best-selling PDA is the IPAQ, which was first offered in October 2000. The company was founded in 1939 and is headquartered in Palo Alto, California.

Other Companies

Mio Technology is based in Taiwan and was formed in 2002. The company manufactures Pocket PCs, Personal Digital Assistants, smartphones and GPS devices. Sharp is based in Osaka, Japan, and was started as a small metal works in 1912. It employed 47,600 people and generated revenues of $23.7 billion for the fiscal year ended March 2006.

MATERIALS & SUPPLY CHAIN LOGISTICS

It is common for a company to design and market a product on its own. A well-established electronics maker might conduct some of the manufacturing in its own facilities, but it is increasingly common for a company to outsource some or most of the manufacturing process. A company can save money by relying on third-party vendors residing in low cost markets in the Far-East or South America, for example. However, any delays in the production of one component can create substantial delays in the overall manufacturing process. Palm Inc., for example, relies on other companies to manufacture its products. Various vendors provide components to a company called Flextronics, which assembles the components for Palm. Palm then relies on logistics firms to distribute the product.

DISTRIBUTION CHANNEL

Hewlett-Packard and Sharp are less prominent in the PDA industry than RIM and Palm; however, they have well-developed distribution networks and established relationships with retailers from their well-known line of computers, servers, and home electronics. RIM and Palm are newer companies, although they, too, have developed distribution channels.

PDAs are typically purchased through electronics and wireless retailers. Industry trackers have released no data specifically on the PDA market, but data on wireless phone sales may offer some insight into consumers spending patterns. The four major wireless phone firms, which are AT&T's Cingular unit, Verizon Wireless, Sprint Nextel, and T-Mobile USA, operate nearly 7,000 retail outlets. Retail consumers buy 65 percent of mobile phones directly from the wireless firms, analysts say. Retailers such as Wal-Mart, Best Buy, and Radio Shack share the remainder of the market. When industry tracking firm Telephia asked survey respondents from what major retailer they had purchased their last wireless phone, Wal-Mart led with 32 percent of respondents as of the third quarter of 2005. Radio Shack had 28 percent of market share, Best Buy 12 percent, Target 8 percent, and Circuit City 7 percent.

KEY USERS

Mark Lazardis, CEO of RIM, stated in a March 2007 interview that "When they go to work, people expect a phone, a desk, a chair, a light. And a BlackBerry has really taken on that status." Some might take issue with Mr. Lazardis' statement, but there are many business travelers that would agree. RIM reported 4.9 million subscribers to the BlackBerry e-mail service at the end of 2006. Companies are putting Palm computers and Pocket PCs into the hands of hotel managers, retail salespeople, warehouse staff, field service engineers—anyone for whom time spent at a desktop PC is time away from the job. A few examples from 2006 indicate how businesses use the device. Pitney Bowes gave 500 service workers BlackBerrys to access schedules, track inventory, and document repairs. Royal Caribbean Cruise Lines deployed 320 BlackBerrys to help executives, salespeople, and operations staff communicate wirelessly, especially during natural disasters such as hurricanes. The National Basketball Association uses BlackBerrys to give executives phone service, wireless e-mail, and access to proprietary programs like a real-time scoreboard.

ADJACENT MARKETS

PDAs and wireless devices are principally computers designed to perform a variety of sophisticated functions. The overall computer market has begun to pull out of the slump it experienced in the early 2000s. Shipments fell from 48.4 million in 2000 to 46.1 million in 2001 in the United States, according to estimates from International Data Corp. Global shipments fell 1.6 percent for the same period. After falling again in 2002, ship-ments in the United States rebounded to 52.7 million in 2003. By 2005, shipments had climbed to 63.3 million. Some of the improvement can be attributed to competitive pricing and the release of new operating systems like Windows XP. But handheld computers certainly played a role in market turnover. Consumers liked the portability of handheld computers and their organizational features. Continued innovations in microprocessors and wireless gear will further stimulate sales in the handheld and the overall PC market.

RESEARCH & DEVELOPMENT

Apple announced its development of the iPhone in January 2007. The phone was available in June 2007 and was the latest and slickest entry in the market for multifunctional devices. The iPhone user can place phone calls, send e-mails, browse the Internet, listen to music and take photographs by using the device's touch-screen technology. The iPhone has no keyboard, which sets it apart from other mobile devices.

It remains to be seen what effect the iPhone will have on the market for PDAs. Several analysts have pointed out that the two products have fairly different users. The BlackBerry is aimed at the on-the-go professional, while the iPhone is more of a consumer product. However, after Apple CEO, Steve Jobs, revealed the iPhone in January 2007, shares for RIM fell 7.7 percent and Palm fell 5.7 percent. Time will tell whether this early reaction to the iPhone was a momentary impulse or a sign of things to come.

CURRENT TRENDS

Consumers outside North America have begun to embrace the smartphone technology. In some cases these phones replace a user's existing handheld PC or PDA. In other cases, users have both, a smartphone and a PDA. Market tracker Canalys estimated that global smartphone shipments for 2006 reached 64.1 million units, up from 39.4 million in 2005, a growth of 63 percent in a single year. Wireless handheld shipments in 2006 rose 44 percent from 5.3 million in 2005 to 7.5 million, overtaking their unconnected handheld predecessors. Symbian was the dominant operating system with a 67 percent market share.

TARGET MARKETS & SEGMENTATION

PDA and handheld PC sales will continue to be driven by the on-the-go business professional. Such workers are traveling and are away from a desktop computer. These workers can stay in touch with the office or access important information on company networks using these devices.

PDAs have not been as popular with the general consumer as other electronic devices have. According to Nielsen Media Research 16.4 percent of households had a PDA in the third quarter of 2006, up just 0.08 percent from the same period in 2005. By way of comparison, over three-quarters of households reported having a cellular phone. Nearly the same percentage, 73.2 percent, had a home computer. Slightly more than 68 percent reported having Internet access and 26.7 percent had an MP3 player.

RELATED ASSOCIATIONS & ORGANIZATIONS

BlackBerry, http://www.BlackBerry.com

Cellular Telecommunications and Internet Association, http://www.ctia.org

Gartner Group, http://www.gartner.com

Palm, http://www.palm.com

BIBLIOGRAPHY

"64 Million Smart Phones Shipped Worldwide in 2006." Canalys.com. Available from 〈http://www.canalys.com〉.

Bachman, Katy. "Study: More DVD Players than VCRs." Mediaweek. 19 December 2006.

Best, Jo. "Mobile & Wireless." Silicon.com. 13 February 2006. Available from 〈http://www.silicon.com〉.

Carbone, Jim. "Strategic Sourcing is Palm's Pilot," Purchasing. 17 April 2003.

Cozza, Roberta. "Report Highlight for Dataquest Insight: PDA Quarterly Forecast Scenarios, 2007–2008, 2Q07." Gartner Group. 2 July 2007. Available from 〈http://www.gartner.com〉.

Ferguson, Scott. "Study: Smart Phone, PDA Shipment Up 57 Percent." Eweek. 10 October 2006.

"Gartner Says Worldwide PDA Shipments Top 17.7 Million in 2006." Gartner Group. 6 February 2007. Available from 〈http:/www.gartner.com〉.

Grieve, Robson. "Dataquest and PC Data Research Studies Place U.S. Robotics PalmPilot at Lead of Thriving Handheld Computer Market." Palm, Inc. 12 May 1997. Available from 〈http://www.palm.com〉.

Hesseidani, Arik. "Unmasking Motorola's Q." BusinessWeek Online. 20 July 2006.

James, Geoffrey. "Windows CE: Problem Child or Late Bloomer?" CNN. 19 October 1999. Available from 〈http://www.cnn.com〉.

Kahney, Leander. "Apple's Newton Just Won't Drop." Wired. 29 August 2002.

Martinson, Jane. "Mr. BlackBerry—$2 Billion Geek Who Started with Lego." The Guardian. 2 March 2007.

Pastore, Michael. "Handheld Market Still Showing Signs of Life." Clickz. 31 January 2002. Available from 〈http://www.clickz.com〉.

Patrizio, Andy. "Why Aren't Smart Phones More Popular?" Internet News. 11 September 2006.

Ross, Scott and Kimberly E. Alexy. Handheld Devices Industry Report. Prudential Financial. 16 May 2001.

"U.S. Robotics Launches Breakthrough Pocket-Size Connected Organizer for PC Users." Business Wire. 29 January 1996.

"Wal-Mart and RadioShack Secure 60 Percent of the Major Retailer Market Share for Recent Mobile Device Purchases, According to Telephia." Telephia. 7 December 2005. Available from 〈http://www.telephia.com〉.

Watson, Brian R. "Research in Motion: The Uncomplicated Type." Baseline Magazine. 5 May 2006.

see also Cellular Phones, Personal Computers