How Low Can Handhelds Go?

In a move symbolic of the cost-cutting and value-adding battle between top
handheld makers, Handspring Inc. Tuesday trimmed $50 from its flagship phone
price tag in addition to spicing it up with wireless and e-mail

VisorPhone will now sell for $449 as a standalone product and retail for
$249 for customers who want the full Handspring package, which includes the
Wireless Internet Access Suite of browsing, messaging and e-mail apps.

The move is consistent with chief rival Palm Inc.’s price slashings; Palm
Monday cut its VIIx handheld $100 — from $299 to $199. Add to that a
$100 rebate once buyers sign up for the Palm.Net Internet access service
(which begins at $25 a month) and the VIIx clocks in at a svelte $99.

While it seemed that just months ago IDC analysts predicted that Microsoft
and Research In Motion (RIM) (of Blackberry wireless pager fame) would begin
to make inroads into Palm’s and Handspring’s market shares, a new problem
has cropped up. Both Handpring and Palm have bowed new handheld models in
recent months, but now it seems they have a deluge of extra, more dated

As for the newly discounted Palm VII, that product was introduced in October
1999 for $499. Indeed, Handspring’s latest discounted product, its
VisorPhone, debuted in September 2000. Handpring has played it smart,
however. Tuesday the company bundled a CD that includes Handspring’s new
Blazer Web browser, Yahoo! Messenger, JP Mobile One-Touch Mail for the
sending and storage of memos and Electric Pocket’s BugMe! Messenger, which
allows users to send and receive handwritten notes, diagrams, sketches,
pictures and photographs.

Key among these features are the new Blazer, which is based on Palm’s
leading handheld operating system and features
content powered by Microsoft’s MSN Mobile and search capabilities provided
by Google. When used with a phone or modem module, Blazer brings Internet
access to the Visor. Blazer supports all major existing standards,
optimizing HTML, WAP and cHTML content for viewing on a handheld display.

Still, the price slashings have caused analysts to sit up and take notice.
With inventory maxed out and sluggish sales presiding over hardware firms,
Lehman Brothers Monday cut share-price targets on Palm to $11 from $25 and
Handspring to $18
from $28, citing the Palm price reduction. One can only imagine further cuts
after Handspring’s news.

The firm believes the pricing war will have a cannibalistic effect on
near-term margins. Specifically, Lehman Brothers believes Palm’s drastic
price reduction for VIIx will eat up some of the sales of Handspring’s
lower-end models, which would seem to make it Handspring’s next chess move.
The $50 cut on its VisorPhone is probably not the answer.

Monday’s and Tuesday’s actions by the handheld outfits seem to be follow-ups
to maneuvers made by the companies in recent weeks. Last week, Handspring
lowered prices on its Visor Deluxe (from $249 to $199) and Platinum models
($50 rebates). In April, Palm cut the price of its Palm Vx from $349 to $299
and said it would reduce the low-end m100 from $149 to $129.

Overall, analyst consensus seems to dictate that Palm and Handspring need to
clear out the warehouses of some of the older models before launching
next-generation “always-on” models priced in the $400 to $500 range.

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