Market for Hand-Helds Shrinks in Third Quarter

Shipments of hand-held computers fell 9.5% in the third quarter as buyers delayed purchases in anticipation of devices with improved hardware and software features, according to a study released this week.

Worldwide shipments of personal digital assistants dropped to 2.54 million in the third quarter from 2.81 million in the second quarter, according to Dataquest, a unit of research firm Gartner Inc.

Dataquest said customers held off on buying hand-held devices partly in anticipation of the Pocket PC 2002 operating system from Microsoft Corp.

Palm Inc. remained dominant in the market for the wallet-size digital organizers, although its market share fell to 30% from 32% worldwide and to 38% from 40% in the United States.

Handspring Inc., the industry’s No. 2, claimed a 14% stake globally, up from about 11%, and its U.S. share grew to 22% from 17%.

Palm and Microsoft, makers of competing software to power PDAs, are battling for a market expected to grow significantly in coming years as devices evolve into smart communication tools capable of making phone calls, sending e-mail and retrieving data from office networks.

The tough economy has hurt all PDA makers, but Palm’s momentum has been further stalled by oversupply and a price war with Handspring, whose devices use Palm’s operating system. Microsoft, far bigger than Palm and known for aggressive competitive tactics, has seen steady sales growth for devices incorporating its technology as it focuses on the corporate market.

In the third quarter, Palm operating system devices accounted for 52% of the global PDA market.