Compaq to beat Palm on PDA revenue – Gartner
But only with some questionable maths
Palm is certainly having problems, but is the PDA company really in quite as much trouble as market research firm Gartner Group is suggesting in its latest report?
Gartner report, apparently to be released today but announced early and uncritically on CNET, goes as far as to claim Compaq will make more money selling iPaqs this quarter than Palm will make selling its PDAs.
The argument is based on expected sales figures and some questionable maths. Palm shipped 1.18 million PDAs this time last year, but will only manage around half that number this time - some 622,000 units, according to Gartner.
In addition, the average selling price of a Palm machine has fallen to $209. Multiply one number by the other and you get a little under the $135 million Gartner reckons Palm will report as hardware revenue this quarter.
Compaq, in contrast, will report between $200 million and $250 million. How? Its average selling price is $500, and Compaq has said it will ship 450,000-500,000 iPaqs this quarter. Again, multiply the two together and you'll see how Gartner's sums have been done.
Several points occur to us. First of all, average selling price doesn't translate into the amount of money each company will make. Gartner's calculations assume all products are sold direct and no resellers take a cut. Compaq certainly charges more for its PDAs than Palm does, and its margins may well be higher, but the kind of corporate markets it sells into means is loses margin to distributors and resellers.
Second, according to Palm's own pricing, its average price comes out at around $281, not $209, which should put its sales at $181 million.
And that assumes the 622,000-unit figure is correct. Palm's own guidance points to revenues of $140-160 million. Gartner estimates the final figure will be $145 million, from which it subtracts $10 million in software and licensing revenue. That last figure isn't likely to change much, so Palm could end up with a hardware revenue of $150 million, which would imply higher unit sales.
But here we're making predictions based on certain assumptions, just like Gartner is, and using similar mathematical jiggery-pokery. The truth is, no one outside Palm's inner circle will know exactly how the company stands alongside Compaq's iPaq division until both companies' quarterly figures are published.
Gartner raises some important questions nonetheless. Compaq's iPaq is selling well, despite what many observers once thought would be too high a price, and it does seem to be finding particular favour with corporates. Palm has won plenty of executive support, but those sales have always gone primarily to an organisation's individuals, less to its IT department.
Then again, given Palm's previous sales figures, Compaq's numbers, focuses on a potentially much larger target market, are hardly electrifying. They may also reflect sales catching up with demand. Six months ago, iPaqs were a lot harder to come by than they are now. The company may yet be hit by the same downturn that has hit Palm and, more recently, Handspring, once this lag between supply and demand is removed. If that's the case, this revenue blip - which says little about about Palm's marketshare lead or its ability to retain it - shouldn't matter too much.
But what Palm did in the past is far less important than what it's doing now. And if Gartner's estimates, pessimistic as they may seem, are correct, that's a worrying trend, whatever effect it eventually has on Compaq. The relatively tiny licensing revenue ($10 million, according to the Gartner numbers) suggests that spinning off its PalmOS division will be tricky - it's simply too dependent on the hardware sales Palm is making. Or not, as the case may be. ®
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