Recent price wars between handheld device vendors in the US have prompted some similar activity in Australia's retail market, with new competition and a wider variety of models forcing downward pressure on prices and already creating a "zero-margin" market dynamic.
The overseas price drops have been noticed by John Armenakas, managing director of PDA middleware developer Mbrane Asia Pacific. "There is no doubt the price war has already begun in Australia," he said. "And vendor consolidation has already begun, just look at Ericsson and Sony's decision to merge their handset divisions."
Vendors and distributors claim there are no similar inventory issues in Australia as those that have hampered the vendors in the US. "For some models there isn't enough inventory, and for others there is an abundance. Inventory levels change on a weekly basis. The situation in the US is specific to Palm in the US," said Darren Ng, Palm Asia Pacific's sales director.
The introduction of further competition in the handheld market, which for several years has been dominated by Palm, is seen as another reason for the pressure on prices. Earlier this year Vodafone Australia began distributing Handspring devices on the Australian market, with other players like Compaq's iPAQ and Rex also starting to capture market share.
"With the colour models hitting the market, and competition being introduced, we are seeing prices drop," said Michael Glezerson, managing director of e-tailer Ozbuy.com.
Dean Wilson, executive director of IT&e, parent company of Palm distributor Chips, said he expects vendors to drop the prices of current models as new models begin flooding the market. "The range has diversified dramatically, and there are new competitors in the market," he said. "There needs to be changes to some of the prices or there will be gaps."
Ron Harris, proprietor of Coles Myer-owned technology retailer Harris Technology, said the retail market has been undertaking its own price war. "In the last six to eight months there has been a war on the pricing of Palm handhelds.," he said. "Pure e-tailers are using the handheld as a price leader to attract customers. We are selling at a loss on some occasions because we have made a commitment to always meet or beat [competitors] on pricing."
The channel does not seem too concerned that a price war might affect their margins because, according to Harris and several of his peers, there are no margins in selling handheld devices anyway. "Handhelds are destined to be a zero-profit product forever," he said. "They have been for months."
Resellers are generally using the handheld device as a "loss-leader", a product that gets the customer in the door. Harris, for example, sells the products to attract professional users who are also likely to invest in notebook and desktop computing products. "We like the whole customer," Harris said. "We will sell them anything from a wide area network to an ink cartridge." Ozbuy.com's Glezerson confirmed that the handheld was a loss leader for his business as well.
Any potential for more price reductions in Australia, however, is threatened by the current exchange rate. "We are buying them from the US at a higher price point, and the vendor is going to want to keep as much margin as possible," said IDC analyst Logan Ringland.