Microsoft beats Palm operating system for the first time in handheld shipments

Friday, Nov. 12, 2004 | 11:51 a.m.

SAN JOSE, Calif. - Microsoft Corp.'s software platform for personal digital assistants took over the market lead from PalmSource Inc. for the first time in the third quarter, according to market research released Friday.

Microsoft's Windows CE operating system accounted for 48.1 percent of the quarter's 2.8 million PDA shipments worldwide, up from 41 percent the previous year, according to market research firm, Gartner Inc.

The Palm OS, developed by PalmSource, took a dramatically steep drop, representing 29.8 percent of the market, down from 46.9 percent in the year-ago period.

Analysts had expected Microsoft to grab the market lead from the handheld pioneer this year, but did not expect the Palm OS decline to be so precipitous, said Todd Kort, a Gartner analyst.

The Palm OS's once-dominant lead has been eroding steadily over the past few years as sales from PDA makers using Microsoft's platform, such as Hewlett-Packard Co. and Dell Inc., and e-mail devices from Research in Motion Inc. grew. Also, PalmSource has been hit hard by slowing sales of basic PDAs as consumers have instead become more attracted to so-called smart phones - handhelds that have not just data capabilities but also wireless e-mail and phone features.

PalmSource, as a result, has recently started to concentrate on developing products for the fast-growing smart-phone market.

"In a way, they're almost abdicating their leadership in the PDA market to focus on the smart-phone market," Kort said.

PalmOne Inc., the maker of Zire and Tungsten handhelds, as well as the popular Treo smart-phone, is still the major licensee of the Palm OS, but this year launched fewer PDA models than in years past. It, too, is focusing more heavily on smart phones.

Meanwhile, sales of RIM's Blackberry handheld, which uses its own proprietary software, have climbed significantly.

In the third quarter, PalmOne still led the PDA market with a 26.2 percent share, but HP continued to close in, reaching 24.2 percent, while RIM jumped to the third spot with 19.8 percent share, compared to 4.9 percent last year. (Gartner does not include shipments of Treos and Blackberry phones in its PDA report.)

Dell PDAs were ranked fourth at 6.5 percent share, followed by Symbol Technologies at 2.2 percent.

Third-quarter PDA shipments are typically driven more by business customers - a segment that Microsoft's platform targets. But even in the fourth quarter, when PDA sales peak among consumers - Palm's longtime stronghold - Kort thinks that PalmSource will be hard-pressed to turn the tables.

Given the tight competition for PalmOne's Palm-based handhelds, "I'm not expecting PalmSource to have a fantastic holiday season, so it may not be enough to recapture the lead."