1. Presenters: Megan McCarroll Valentin Morozov Ahmed Ozalp Francis Vo Strategy Implications: Competition for Standards in the PDA Industry

2. Agenda Industry Background and Landscape Market Projections Decision Tree Recommendation

3. PDA Industry Background PDA’s are a huge market –In 2000, 8.9 million units sold word-wide, $2.3 billion industry –By 2005, we project the 39 million units and a $6.6 billion in sales Total PDA Units Shipped — Global Forecast, 2000 to 2005 Source: Aberdeen Group, August 2001

4. PDA Industry Background Major H/W Players PALM50.4% Handspring15.9% HP (incl. Compaq)11.5% RIM4.6% Other*17.6% Total100.0% * Includes Audiovox, NEC, Toshiba, Casio and others PALM80.0% MS Pocket PC16.0% Other4.0% Total100.0% Major O/S Players

5. Industry Landscape Competitive Rivalry Consumer – Price Wars Professional/Prosumer - Price differentiators Palm O/S vs.MS Pocket PC Supplier Power Weak supplier power Industry-wide shortages increase power Buyer Power Strong buyer power Low switching costs within O/S Threat of New Entrants High because of horizontal integration For H/W, convergence of consumer products For O/S, introduction of more flexible platforms for applications Complementors 3 rd part applications developers 3 rd party hardware add-ons Threat of Substitutes Very low, paper-based day planners Possibly Yahoo distributed system but not ubiquitous

6. Industry segments Consumer –Mostly Palm-based, difficult integration –Palm, Handspring –Prices $150-350 –First-mover advantage, established the standard –Dominates the market –Buying decisions made by consumers –Important features: price, ease of use Business –Windows-based, easy integration –Compaq, HP –Prices $200-450 –New standard –Rapidly growing segment –Buying decisions made by IT managers –Important features: integration with IT systems, uniformity across company

7. Growth Forecast Windows-based systems overtake in 2003 Economies of scope, scale, better margins, deeper pockets Is Palm next BetaMax ? What does this mean for HP ? Palm and Pocket PC — Global Forecast, 2000 to 2005 Source: Aberdeen Group, August 2001

8. N N = = = - - - + No risk, no reward Decision Tree Devoted, small share Might get larger percentage of small growth market Get out of handhelds Bigger share Biggest share Smaller share Continue as is Alliance (cell phone, hardware) Compete on OS Change, dominant now Stay with MS, may become dominant

9. Recommendations Continue to support and promote merger effort with Compaq –Advantages of not competing head to head with Compaq on MS OS –If merger does not succeed, we would still maintain our current trajectory with Microsoft OS, but would need to develop a differentiating point between HP and Compaq Proactively co-brand with Microsoft Work with Microsoft to fuel creation of “killer apps” for MS OS standard