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Shipments of personal digital assistants continued their steady fall in the first quarter of 2004, as a stronger than usual seasonal dropoff in shipments added to an ongoing decline.

Handheld device vendors shipped 2.2 million units in the first quarter, down 11.7 percent from the first quarter of 2003, and 33.1 percent off the fourth quarter of 2003, says David Linsalata, an analyst with IDC in Framingham. Many people who were planning to buy a PDA decided to buy amid the fourth-quarter holiday shopping season rather than waiting until the first quarter, he says.

IDC defines a handheld device as a pocket-sized device such as a PDA that is capable of synchronizing with a PC. This includes devices that can manage and store data or connect to the Internet through expansion cards or built-in chips, but excludes devices with voice capability.

Shipments of entry-level PDAs such as PalmOne's Zire device and Hewlett-Packard's iPaq h1940 have increased as those companies have focused on the low end of the market, Linsalata says. However, the profit margins on these devices are not as strong as their high-end cousins, which face competition from sophisticated cell phones and smart phones, he says.

Smarter Devices?

Analysts have been warning PDA vendors for several quarters that consumers and business customers have lost their taste for stand-alone PDAs that manage contacts and calendar information. Instead, high-end buyers are increasingly intrigued by new cell phones that have improved personal information management capability or smart phones that combine a cell phone with a powerful PDA operating system such as PalmSource's Palm OS or Microsoft's Windows Mobile, Linsalata says.

To compete with these new cell phones, PDA vendors must build wireless Internet capabilities into their devices or offer support for unique applications such as GPS tracking or movie players, Linsalata says.

PalmOne's Treo 600 smart phone has been its fastest growing product, with shipments increasing 37 percent from PalmOne's second quarter to its third quarter, which ended in February, according to PalmOne's third-quarter results. However, shipments of PalmOne's core handheld products slipped 38.7 percent from the calendar fourth quarter of 2003 to the first quarter of 2004, IDC says.

PalmOne still leads the overall market with 36.1 percent market share, and is especially sensitive to seasonal fluctuations since it has a strong presence in the consumer market, Linsalata says. The company is expected to introduce two new Zire PDAs for consumers in this quarter, which will help it improve shipments of its PDAs, he says.

Making Changes

But PalmOne has also served notice that it plans to reorganize its company around the smart phone expertise it acquired from Handspring.

"There will always be a handheld market. But going forward, the converged device [smart phone] will generally have a larger market," Linsalata says.

HP posted the strongest quarter of any of the major vendors. Its shipments grew 24.8 percent in the first quarter of 2004 compared to last year's first quarter, although it was not immune to the sequential drop that plagued the rest of the industry as it came off the fourth quarter.

HP's strength comes from its wide-ranging product line, which offers users a choice of highly capable PDAs at multiple price points starting with the h1940 series at around $300 to the h5000 series at around $650, Linsalata says.

Sony came in third place for the quarter, but posted an alarming 49.6 percent drop in shipments from the first quarter of last year to this year's first quarter. Sony is in the middle of a switch from marketing multimedia features to improving PIM capabilities, Linsalata says.

Dell improved its first-quarter 2004 shipments by 2.2 percent over the first quarter of 2003 to finish in fourth place. Toshiba regained the fifth spot from German vendor Medion, which did not repeat its strong fourth quarter performance despite a solid quarter for Western Europe, Linsalata says.

IDC is a division of International Data Group, the parent company of the IDG News Service and PC World.