Features

SAN JOSE – Palm Inc. remains the world’s leading supplier of handheld computers but will lose its top spot in terms of revenue to Compaq Computer Corp. in the second calendar quarter, according to Gartner Dataquest. 

In a report to be released Monday, the market research firm projects Palm will ship about 700,000 units worldwide, earning between $130 million to $135 million in hardware-related revenues for its fiscal quarter ended June 1. That’s a dramatic drop from the record $507 million it earned two quarters ago. 

By comparison, Houston-based Compaq, whose current quarter ends June 30, is expected to ship up to 500,000 units, resulting in revenues of more than $200 million. Gartner Dataquest did not have historical revenue comparisons for Compaq but said it shipped 250,000 units two quarters ago. 

Palm’s loss in revenue leadership — its first since the Palm Pilot debuted in 1996 — stems partly from the fact that the average price of Compaq’s rival iPAQ devices are about $500, or twice that of Palm products, according to analysts. 

But it also underscores an erosion of Palm’s once high-flying dominance in the young and fast-growing industry of personal digital assistants. 

Palm is currently struggling with an inventory glut and a slowdown in sales — both economy-driven and somewhat self-imposed because of a transition to a new product line. 

At the same time, the Santa Clara-based company has lagged behind competitors, especially in wireless features, and improvements to date of its operating system have not been very significant, said Ken Dulaney, vice president of mobile computing at Gartner Dataquest. 

Microsoft Corp.’s competing Pocket PC operating system, which is used in the iPAQ, is gaining ground as a result, though it remains a distant second to Palm’s overall market share of handheld devices. 

Palm officials have said the company is streamlining its operations and will continue to aggressively develop new products, including ones with wireless features. 

Dulaney thinks Palm will be able to regain its revenue crown from Compaq in perhaps one or two quarters, after it sifts through its troubles. But, he said, the company “must make some changes” to “achieve the level of profitability it enjoyed in the past.”