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08/02/2010

Strong 2010 Rebound for Rugged Handheld Computing Market...But Challenges Remain

Sales of rugged handheld mobile computers - widely used by mobile workers supporting mission critical applications in a variety of industries - cratered in 2009 with the market contracting by 30%+ in certain segments. While VDC Research expected the market to return to growth in 2010, the rate at which the market has performed over the first six months of 2010 was slightly unexpected. Overall, the rugged handheld market grew by almost 8% in Q1 2010 over Q1 2009. Excluding Intermec - which had a difficult comparison because of its strong government sales in 2009 - the growth would have reached almost 12%.

Several factors combined to contribute to this strong performance. Some of the more notable include:

Return of the retail sector. Retail sector spend on rugged mobile solutions has been sluggish for the better part of the past 24 months. Much of the pent-up demand is now beginning to be realized driving a boost to spending for retail shop-floor in addition to back-room warehouse applications.

Tier I account spend. Largely absent over the past 18 months, large Tier I programs - especially in the highly competitive mail/courier segment - have provided a strong boost to the market. What is especially important is that whereas these contracts used to be highly US-centric, large contracts are increasingly available in international markets.

Field mobility opportunity. The strongest long term growth prospects for rugged handheld devices will be in 'beyond the fence' field mobility environments. This represents the least penetrated market segment and is just beginning to realize the benefits of mobilizing certain processes.

While 2009 is a fading memory for many rugged handheld vendors, most continue to face several significant challenges. 

Price competition/erosion. Although performance in the first half has been strong, much can be attributed to unrealized pent up demand. Business development has not been able to keep pace resulting in leaner pipelines. Consequently the level of price based competition continues to be severe and represents perhaps the industry's greatest challenge moving forward (year over year price erosion may reach 10% for rugged handhelds in 2010 - the highest it has been since 2006/07). While end users certainly are not complaining, the intense price wars have resulted in rapidly shrinking margins among both hardware vendors and their channel partners.  

Smartphone challenge. Another critical challenge facing rugged handheld vendors is the increasing level of competition from smartphones and other emerging devices - especially for field mobility applications. While smarphones do not have the same level of integrated I/O capabilities nor the level of ruggedness offered by rugged handheld devices, their proliferation in the enterprise (and lower adoption cost) are making them target devices to support more sophisticated enterprise applications. Plus, in the field mobility market the rugged handheld community is most challenged from an OS perspective. Although there is a strong application and developer community supporting field mobility applications on Windows Mobile devices, customer expectations in terms of user interface and experience - especially for field mobility applications - is increasingly influenced by consumer oriented smartphones.

Amidst these challenges, VDC remains optimistic about the future outlook for rugged handheld devices and is projecting a compound annual growth of 8% through 2014. However, participating in these markets is only becoming more challenging and vendors need to be prepared to be more agile to adapt to these conditions.

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