Presenters:

1
Strategy ImplicationsCompetition for Standards
in the PDA Industry

• Presenters
• Megan McCarroll
• Valentin Morozov
• Ahmed Ozalp
• Francis Vo

2
Agenda

• Industry Background and Landscape
• Market Projections
• Decision Tree
• Recommendation

3
PDA Industry Background

• PDAs are a huge market
• In 2000, 8.9 million units sold word-wide, 2.3
  billion industry
• By 2005, we project the 39 million units and a
  6.6 billion in sales

Total PDA Units Shipped Global Forecast, 2000
to 2005
Source Aberdeen Group, August 2001
4
PDA Industry Background

• Major H/W Players

Major O/S Players
5
Industry Landscape
Threat of New Entrants High because of horizontal
integration For H/W, convergence of consumer
products For O/S, introduction of more flexible
platforms for applications
Competitive Rivalry Consumer Price
Wars Professional/Prosumer - Price
differentiators Palm O/S vs.MS Pocket PC
Buyer Power Strong buyer power Low switching
costs within O/S
Supplier Power Weak supplier power Industry-wide
shortages increase power
Complementors 3rd part applications
developers 3rd party hardware add-ons
Threat of Substitutes Very low, paper-based day
planners Possibly Yahoo distributed system but
not ubiquitous
6
Industry segments

• Consumer
• Mostly Palm-based, difficult integration
• Palm, Handspring
• Prices 150-350
• First-mover advantage, established the standard
• Dominates the market
• Buying decisions made by consumers
• Important features price, ease of use

• Business
• Windows-based, easy integration
• Compaq, HP
• Prices 200-450
• New standard
• Rapidly growing segment
• Buying decisions made by IT managers
• Important features integration with IT systems,
  uniformity across company

7
Growth Forecast

• Windows-based systems overtake in 2003
• Economies of scope, scale, better margins, deeper
  pockets
• Is Palm next BetaMax ?
• What does this mean for HP ?

Palm and Pocket PC Global Forecast, 2000 to
2005
Source Aberdeen Group, August 2001
8
Decision Tree
Devoted, small share

Continue as is
Might get larger percentage of small growth market

Alliance (cell phone, hardware)
Bigger share

Change, dominant now
N
Compete on OS
Smaller share
-
Smaller share
-
Get out of handhelds
N
Stay with MS, may become dominant

Biggest share
-
No risk, no reward
9
Recommendations

• Continue to support and promote merger effort
  with Compaq
• Advantages of not competing head to head with
  Compaq on MS OS
• If merger does not succeed, we would still
  maintain our current trajectory with Microsoft
  OS, but would need to develop a differentiating
  point between HP and Compaq
• Proactively co-brand with Microsoft
• Work with Microsoft to fuel creation of killer
  apps for MS OS standard