Smart phones: Intelligence runs in the family: meet Treo, child of the PalmPilot

Rough, but reasonable, estimate puts the number of email inboxes at 900 million worldwide. Most of these are viewed through either a laptop or desktop computer. At the same time, industry estimates suggest that between two and three million people have bought smart phones.

Rough, but reasonable, estimate puts the number of email inboxes at 900 million worldwide. Most of these are viewed through either a laptop or desktop computer. At the same time, industry estimates suggest that between two and three million people have bought smart phones.

The gulf between the two figures illustrates the scale of both the opportunity, and of the challenge, facing Ed Colligan. As president of PalmOne, a handheld computer and smart phone maker, Mr Colligan wants to capture those mailboxes as they go mobile.

For PalmOne, though, much more is at stake than a foray into a potentially lucrative new business. The PalmPilot - developed by the networking company 3Com before it spun off Palm, which in turn demerged PalmOne - more or less established the market for the touch screen and pen-driven handheld computers (know as personal digital assistants or PDAs). But that market is now in decline.

According to figures from IDC, a market research company, handheld shipments in the third quarter of this year came to 2.1 million units, down 8.7 per cent on last year. Within that market, PalmOne faces strong competition from machines based around Microsoft's rival PocketPC operating system.

IDC's figures, however, do not include sales for smart phones, which offer mobile internet and email access. Smart phones are one of the fastest-growing segments of the technology market. Devices such as PalmOne's Treo phone have enabled it to raise sales 62 per cent for the first quarter of this financial year.

Mr Colligan is a smart phone enthusiast, having started out at Palm before joining Handspring, set up by ex-Palm executives to create Palm-compatible handhelds and smart phones. PalmOne bought Handspring last year.

On a recent visit to London, he demonstrated the latest Palm-powered phone, the Treo 650, which features a better screen, keyboard, Bluetooth connections and better synchronisation with computers running Windows. These changes, Mr Colligan believes, will help PalmOne to compete with manufacturers such as Sony Ericsson and Nokia, as well as persuading existing Palm users to switch to a smart phone.

"The PDA market has been flat to declining," he says. "But I look at the mobile computing and communications business and see that growing rapidly. We are cannibalising ourselves. If PDA sales are shrinking, it is because we have a smart phone business."

But demand for Treo smart phones, in the UK at least, has been limited by PalmOne's decision to sell the phone only through Orange, and by supply problems. "It's a good problem to have," Mr Colligan says. "We had a higher level of demand than we expected and were unable to supply Orange with everything they needed. With the Treo 650 we are ramping up production capabilities, and we don't believe we will see similar problems."

PalmOne plans to make the new phone available to a wider range of networks across Europe. "The big opportunity is to [sign up] another major network group, rather than individual carriers," Mr Colligan says.

For the mobile phone networks, PalmOne's devices are both attractive and troublesome. Treo is a premium product, with the current version selling for around £200. And smart phones tend to maintain their premium pricing for longer. More basic phones are frequently given away free within a year of launch.

There is also evidence that subscribers who opt for a smart phone spend more money with their networks. "We are supported by all five networks in the US and we have seen great uptake there," Mr Colligan says. "That is less the case in Europe but that will change. The biggest thing we bring to the table is a great user experience, and that drives higher revenues per user."

But for a network to sell a PalmOne smart phone, it has to be willing to take on board another operating system. The mobile phone networks already have to support phones based around the Symbian operating system, with different versions from Sony Ericsson and Nokia, Microsoft's Windows Mobile and the Blackberry.

Mr Colligan argues that Palm-based phones are easy for both subscribers and networks to configure. "We make it easy to adapt our products," he says. "We do not go in saying, 'here is another operating system'."

Despite PalmOne's ambitions for the smart phone market, the company is not turning its back on standalone PDAs. In fact, the low-end market is one where Mr Colligan believes he can make money - and where the competition struggle. PalmOne has sold over three million of its basic handhelds, called Zires. "A huge percentage of buyers have never owned a PDA or digital device." Mr Colligan says. He hopes they will trade up to more powerful models later.