Handheld suppliers are gearing up to meet increasing consumer demand for converged devices, or smartphones, market research firm IDC said Monday.
The market for standalone personal digital assistants has been dropping steadily for several quarters as consumers and businesses hold off from purchasing anything other than essential technology items, IDC said. In 2003, worldwide handheld shipments declined by 8.4% to 11.35 million units.
However, shipments of converged devices - mobile phones with data capabilities or data-centric PDAs with voice applications - will increase to about 13 million units by the end of 2003, IDC said.
Alex Slawsby, an analyst with IDC, said, "Unconnected devices will have a short lifespan over the next couple of years. End-users are not interested in carrying multiple devices, they want to carry one device that suits their needs."
Consumers generally favour converged devices where voice is the primary application and there is strong support for data applications such as instant messaging and contact databases which allow them to ditch their older PDAs, Slawsby said. Enterprise customers generally want their users to have access to corporate applications and databases and they tend to select larger devices with bigger screens, more processing power and voice capabilities.
The converged device market is too small and too young to be divided into separate categories, Slawsby said. Also, device manufacturers continue to release handhelds that defy easy categorisation into voice-centric or data-centric converged devices.
Nokia dominates the market for converged devices, shipping 1.2 million units (61% of the market) in the second quarter, as measured by IDC. The firm will add more converged devices based on the Symbian operating system to its arsenal by the end of the year and also plans to sell millions of its forthcoming N-Gage device.
The N-Gage will combine voice, data and gaming applications into a single device which is expected to cost less than £350, Nokia said when it announced the product in February.
A total of about four million converged devices were shipped worldwide in the first half of the year, setting the stage for a strong second half, Slawsby said. Sony Ericsson and Motorola are also leaders in the worldwide market.
PDA supplier Palm plans to get into the converged device market through the purchase of Handspring, which is expected to be completed later this year. Handspring fell off of IDC's list of top five converged device manufacturers in the second quarter, but that is expected to change when the Treo 600 is released later this year.
However, hardware manufacturers will come to a point where revenue from hardware declines so that the business is no longer profitable, Slawsby said. For larger companies such as Hewlett-Packard, Toshiba or Dell, this is not as pressing a problem as handhelds are only a portion of their overall business.
But for companies such as Palm and Research in Motion, alternate sources of revenue will be needed to keep business going. Those companies may want to consider licensing their technology or developing services around the hardware to supplement declining hardware revenues.
"It is part of the long march toward commoditisation. It will be a long time before that impact is felt, but manufacturers need to consider alternatives," Slawsby said.
Tom Krazit writes for IDG News Service
This was first published in August 2003