Mobile Industry in Flux

SAN FRANCISCO — Two reports issued this week point to a mobile
device industry that’s in transition.

The CTIA Wireless Association offered a rosy wireless usage picture with
news that the number of subscribers grew by 21,401,569 (14.5 percent)
between June 2003 and June 2004. The organization’s Semi-Annual Wireless
Industry Survey also found a wireless industry that is experiencing a 17
percent increase in cumulative capital investment — up more than $22.5
billion. As of June 2004, total cumulative capital investment stood at
over $156 billion.

The survey also showed that nearly 27,000 cell sites were
constructed in the previous year, an increase of 18 percent. The trade
group reports more than 174,000 cell sites in the United States alone.

“Not only are more people choosing to join the wireless network, but
those customers are also choosing to spend more time on expanding
it,” CTIA President and CEO Steve Largent said during his keynote at CTIA’s Wireless IT show here.
“This is an industry that is serious about re-investing in its core
business.”

Largent also said more people are using their wireless devices for
longer periods of time. The CTIA report found more than 500 billion
wireless minutes were used in the first half of 2004 — an increase of
35 percent between June 2003 and June 2004.

But reports of strong growth in usage and backend investments is
tempered by a study issued this week showing a decline in handheld sales
for the third straight quarter in a row.

Despite strong shipments from top five vendors HP
and Dell , IT research firm IDC said the market
continued to shrink, due to a drop in shipments from market leader
palmOne and the ongoing withdrawal of former number 3 vendor Sony. The
survey also found device shipments decreased 4.6 percent sequentially
and 8.7 percent year over year in 3Q04 to 2.1 million units.

“Consolidation in the worldwide handheld device market continues with
the exit of top vendors Sony and Toshiba from international competition
nearly complete,” IDC said in its report.

IDC’s analyst suggest success in the handheld market is dependent on
making the device more than just an address book and calendar.

PalmOne experienced a decline of 12.7 percent over last year, but
still expects stronger handheld growth in the next quarter, given its
typically strong sales during the holiday season and the introduction of
its new Treo
650
this week.

“It is crucial that vendors push handheld devices into new market
segments through the integration of existing technology such as GPS
bundles, in order to energize this market and return it to a growth
path.,” David Linsalata, analyst in IDC’s Mobile Devices program, said in
a statement.

One vendor that is gaining from consolidation is Microsoft . The company is solidifying its position as the number two
software vendor for PDAs and smartphones with its Microsoft Pocket PC
and Smartphone operating systems. A new study from ABI Research entitled
“Wireless Handset Software” suggests that market leaders PalmSource
(PDAs) and Symbian (smartphones) are continually looking over their
shoulders to see gains from Redmond, Washington. The departure of Sony
and Toshiba is also helping fuel a surge in HP and Dell PDAs — two
strong Microsoft supporters.

Microsoft announced a multi-pronged attack this week, with support
from T-Mobile’s HP 6375 offer, Motorola’s MPx-220 courtesy of Cingular,
and the Sprint PCS Vision Smart Device PPC-6601. The software giant also
extended its backend support for Exchange Server, SQL Server and Windows
Office, along with new Visual Studio developer tools and third-party
software support from HP, Accenture, and Dextera.

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