Sony's Clie handhelds will continue to be sold in Japan. Their future here is unclear. _____Sony Corp ADR_____ • (SNE) Stock Quote and News • Historical Chart • Company Description • Analyst Ratings _____palmOne, Inc._____ • (PLMO) Stock Quote and News • Historical Chart • Company Description • Analyst Ratings _____PalmSource, Inc._____ • (PSRC) Stock Quote and News • Historical Chart • Company Description • Analyst Ratings _____TechNews.com Archive_____ • Two Roads Diverge for Three New Handhelds (The Washington Post, May 2, 2004) • A One-Two Punch From Palm (The Washington Post, Apr 27, 2003) • One Big Hang-Up About Sony's Clie (The Washington Post, May 5, 2002) • Four That Rewrite the Handheld Book (The Washington Post, Oct 12, 2001) _____PC Headlines_____ • Projectors Offer Cheaper HDTV (The Washington Post, May 30, 2004) • Game Firms Think Small (The Washington Post, May 12, 2004) • Same Is Name of the Game (The Washington Post, May 8, 2004) • Two Roads Diverge for Three New Handhelds (The Washington Post, May 2, 2004) • More Headlines E-Mail This Article Print This Article Permission to Republish

By Mike Musgrove
Washington Post Staff Writer
Wednesday, June 2, 2004; Page E01

Consumer electronics giant Sony Corp. said yesterday that it will not sell its Clie line of handheld computers in the United States this holiday season, as handheld sales continue to decline and cell phones equipped with cameras and other features catch on with consumers.

Though Sony will continue to offer the line in Japan, the company was noncommittal on whether U.S. consumers will see the gadgets on store shelves after this year.

"Sony is reassessing the direction of the conventional [handheld] market," the company said in a statement.

Sales in the handheld industry have slipped in recent years. At the market's peak in 2001, 6.4 million units were shipped in the United States, according to research firm IDC. In 2003, that number was down to about 5 million.

David Linsalata, an analyst with IDC, said that the declining sales are a result of a handheld industry that hasn't figured out how to make products that are indispensable to consumers.

The personal digital assistant combining address books, calendars, to-do lists and other software "hasn't found a new 'killer app,' " he said. "Without something to draw users back, there's not a lot of growth opportunity there."

Instead, cell phone makers have been gaining ground by adding photo, e-mail, calendar and other software to their products. As a result, sales of "smartphones" edged past handheld sales worldwide for the first time last year, for a total of about 13 million phones last year compared with about 11 million handhelds worldwide. IDC estimates the number of smartphones may double this year. Based on a worldwide market of 500 million cell phones bought every year, there's plenty of room for growth.

Companies vying for the limited pocket space of consumers have been tinkering with all manner of gadgets that meld phones, cameras and music players in various combinations. For companies that figure out how to do it, the rewards can be great: Research In Motion Ltd., a former niche player, has had success with its BlackBerry line of products that combine wireless e-mail, phone and other software, and its stock has soared in the past year, trading on the Nasdaq Stock Market from $18.82 to $123.73 a share.

Though there have been more flops -- such as a video-game-equipped cell phone from Nokia Corp. last year -- than successes, there's a continual stream of new gizmos in the works. Sony, for example, has a portable video-game, music- and video-playing handheld of its own in the works and scheduled for a U.S. release next year.

Sony was an early innovator in the handheld industry when it dove into the market in 2000. Licensing operating software from Palm Inc., Sony rolled out slick handhelds with high-resolution color screens, built-in cameras and a number of features that were often rapidly adopted by competitors for their own lines.

Palm, which initially popularized the handheld in the 1990s, has had its own struggles. It recently split itself into two companies, PalmOne Inc. and PalmSource Inc. -- a hardware maker and software maker, respectively. David A. Limp, senior vice president of corporate and business development at PalmSource, said Sony's licensing fees account for about 12 percent of PalmSource's revenue, income that the company hopes to make up with new partners and a growing smartphone market.

"I don't think we were surprised by the [Sony] announcement," he said. "You can look at the trends."

PalmOne now offers a range of products, from barebones handhelds to high-end smartphones. Some analysts suggested Sony may have simply tried too hard to be distinctive. Michael Gartenberg, research director at Jupiter Research, said that many of Sony's handhelds are like "concept cars" -- "high-end and futuristic, but in many cases not very practical."

Gartenberg offered as an example a Sony model that came with a 2-megapixel digital camera, a price tag of $800 and "horrible" battery life as one reason that Sony's market share in the handheld arena has drifted from a high of 28 percent to a current low of around 14 percent.

"Handheld design is really an art," he said. "It's almost as important what you leave out as what you put in, and in many cases Sony was just over-engineering its products."