By Matt Beer
(AFP) The little computer that could is looking over its shoulder, and it doesn't like what it sees: the corporate behemoth Microsoft.
Palm, maker of the fabulously popular handheld computer, is a Silicon Valley success story, especially as other technology titans, including Microsoft, Compaq, Gateway and Intel, warn of sagging profits ahead.
The Santa Clara, California-based company's stock, which was been on a steady rise since mid-year, received a "strong buy" this week by Morgan Stanley Dean Witter.
That rave came after analysts saw the upcoming version of Palm's operating software, which will let Palm devices log into the Internet via wireless phones and other data connections.
Analysts got a peek the next wave of Palmistry at this past week's PalmSource 2000 Event here, featuring supermodel Claudia Schiffer offering her signature model Palm Vx.
"The tone was positive and we see strong platform momentum," reported Morgan's analysts during the Palm show.
But dark clouds loom. At night, after the conference sessions closed, independent Palm software authors -- those who create the programs that work on the devices -- were being wined and dined at the Blue Chalk Cafe, courtesy of Microsoft.
This coordinated "seduction," as Palm's chief marketing officer Satjiv Chahil termed it, is just one of Microsoft's efforts to knock Palm from its pedestal. For the third time, Microsoft has launched a software-based campaign aimed directly at Palm's market.
The company's latest Palm salvo is based on Microsoft's Pocket PC, a software package that powers the latest handheld devices now manufactured by Compaq, Hewlett-Packard and others.
Microsoft has good reasons for its Blue Chalk wooing.
Palm currently owns 77 percent of the worldwide hand-held market, with some 17.5 million devices sold to date.
Whoever wins this race will be in an enviable position: most Internet market research firms believe half of those going online by 2004 will do so using a handheld device.
Microsoft is candid in its desire to seize this growing market from Palm. Its plan this time is to use its overwhelming dominance on the world's desktops and laptops -- now more than 90 percent of the world's computers -- to become a major player in the Palm-dominated handheld market. Microsoft officials believe corporate computer buyers are more apt to buy Microsoft-based portable devices, because of their familiarity with its Windows software running on their other machines.
"Microsoft doesn't necessarily have a better technology," said Kevin Burden, a hand-held device analyst with Framingham, Massachusetts-based IDC. "But companies tend to go with someone they know."
Although the software giant has a paltry 18 percent of the handheld software market, it is now indeed considered a serious threat to Palm's dominance. According predictions by tech market watchers, including IDC and others, Microsoft will seize 40 percent of the world's handheld market by 2004, slicing Palm's dominance down to 51 percent.
Microsoft believes it is finally on track to put a serious dent in Palm.
"We're certainly encouraged by those predictions," said Ed Sowanjindar, product manager for Microsoft's mobile devices division. "They've validated our approach."
Palm, however, scoffs at the analysts.
"The numbers, for the last couple of years, have always been that Microsoft is going to overtake us," said Michael Mace, Palm's chief competitive officer. "Then it doesn't happen and the numbers are revised."
These are just predictions, but there were similar numbers tossed about when Microsoft decided to take on Netscape in the Internet browser wars of the 1990s.
Now Netscape, whose software kicked off the World Wide Web era in 1994, is now an also-ran to Microsoft's Internet Explorer
"It's getting to be very much like the Netscape wars," said IDC's Burden. "Hopefully, for Palm, it won't have the same outcome."
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