Psion unnerved as Ericsson announces Microsoft link-up

SHARES IN Psion, the producer of personal organisers and mobile phone software, plunged by as much as 40 per cent at one stage yesterday after Ericsson, the Swedish telecoms equipment group, struck a strategic partnership with Microsoft to develop web browser and e-mail devices for mobile communications.

The partnership with Ericsson, the world's number three mobile handset manufacturer, helps Microsoft make up lost ground in developing services for mobile Net access devices. It challenges Symbian, a joint venture led by Psion, which includes Ericsson, Nokia and Motorola, which is developing mobile handset products around the UK company's EPOC operating system. Although the deal won't see Ericsson handsets run Microsoft's Windows CE operating system, it effectively underlines the software giant's determination to become a player in the burgeoning market for mobile services. Microsoft executives said last night that the focus is on improving user convenience, particularly in e-commerce applications.

Psion, which owns 29 per cent of Symbian, closed down 12 per cent at 2,638p after diving to a low of 1,800p - briefly cutting 40 per cent from its pounds 2.2bn market capitalisation. Although Ericsson stressed its commitment to Symbian, in which it holds a 21 per cent stake, the Microsoft pact poses the biggest challenge so far to Psion's lead in developing software for mobile devices.

"This is going to have a long-term impact on the wireless industry," said Ilkka Rauvola, analyst at Paribas. Just a year ago Bill Gates, in a Microsoft memo leaked to the US press, identified Psion as the biggest competitive threat to the software giant. Since then, Psion stock had risen seven-fold, and before yesterday's fall, had tripled in the past two months.

Microsoft acknowledged yesterday that Symbian remains a rival. "Symbian sees itself as developing competing operating systems to Microsoft," said a spokesman. "So, no, we don't plan on joining it - but things change over time."

Like other technology and Net stocks, Psion's market surge has been fuelled by sky-high future growth estimates. This is particularly true of the mobile sector, where wireless Net access, due to begin next year, is seen as the next growth wave.

Ericsson, along with Finnish arch-rival Nokia, has been a leader in wireless network infrastructure and in handset development. Drawing on its relationship with corporations, Microsoft wants to integrate mobile software systems to provide access to e-mail and schedules via corporate Intranet sites. "We think the strategic partnership fits very well with Microsoft's focus on providing information anytime, anywhere," said a spokesman.

With an estimated 1 billion mobile handsets expected to be sold over the next three years, analysts said Psion still has an exceptional opportunity. "Symbian is definitely a player," said Victor Basta, managing director of Broadview & Associates. "One announcement doesn't change that. These things happen when a market is in formation."

Ericsson also stressed that Symbian, as a basic operating system for next generation mobile phones, is not incompatible with its majority stake in the Microsoft joint venture. "Symbian is for a basic operating system," said Kurt Hellstrom, president of Ericsson. "Here we have an arrangement where we are integrating a web browser. They are different arrangements."