Will Psion keep the upper hand?

With its new Series 5, the palmtop market leader hopes to fend off the Microsoft challenge. Cliff Joseph reports

Britain's computer industry is a bit like its film industry. It has occasional bursts of brilliance, but few companies have managed to achieve any sort of sustained success. And all the real stars have gone to work in the United States.

Psion is one of the few exceptions to that rule. The company, which is most well known for its range of hand-held electronic organisers, has been based in the UK ever since it was founded by David Potter in 1980. "We're a rare breed," admits Peter Norman, managing director of Psion UK. "But the company's always been very ambitious."

The computer industry is full of ambitious failures, though, and it takes more than ambition to succeed in such a fast-moving industry. Psion grew up alongside other 1980s success stories such as Sinclair and Acorn. But those companies have long since been swallowed up by multinationals or have vanished altogether, while Psion is still going strong. Last year its sales topped pounds 100m for the first time, and it now employs more than 1,000 staff in its European, US and Japanese offices. Potter is still the company's chairman and chief executive, although he has taken a lower public profile following a recent illness.

What set Psion apart from the likes of Sinclair and Acorn was that Potter and his colleagues were able to back up their ambition and technical know- how with a solid sense of how to run a business.

"We're innovative, but we're quite conservative in our business model," Norman says. In fact, that business model wasn't originally based on selling computers at all. During the early 1980s, Psion was one of the country's leading software developers, producing hit games such as Psion Chess for the Sinclair ZX range of computers. These were followed by a suite of business programs for PCs called XChange, which also sold well.

Software, however, was simply a means to an end. "David saw software as a way of establishing the company," Norman says. "The intention was to use the Sinclair era as a sort of primer."

But while Psion was making most of its money from software, Potter had already designed his first hand-held computer. This was released in 1984 as the Psion Organiser, and was an instant success. It was lapped up by gadget freaks, but it also found its way into businesses such as Marks & Spencers, which used it to verify credit card transactions and to control bar-code scanners. The company also produced a "ruggedised" industrial version of the Organiser, which was popular with engineers and led to the establishment of a subsidiary called Psion Industrial.

Psion had one or two upsets along the way, most notably its early attempt to produce a notebook computer called the MC. The software that Psion had developed for the Organiser wasn't really suitable for a larger notebook device, and the MC didn't take off. The company was prepared to rethink the MC, but it had missed its chance and, according to Norman, "we were just overtaken by the PC world".

The Organiser was still going strong, though, and lasted until 1991 when it was succeeded by the Series 3. The Series 3 had a more elegant, clam- shell case that folded open to reveal a miniature keyboard and LCD display. And, in addition to storing simple information such as names and addresses, it also included fully functional database, spreadsheet and wordprocessing programs.

The Series 3 proved to be Psion's greatest success. It has achieved sales of around 1.5 million worldwide, and established Psion as a global leader in hand-held computer products.

However, the Series 3 is now six years old, and that's a very long time in the computer industry. There have been updates, such as the Series 3c that was released at the end of last year, but they haven't really broken any new ground. In the meantime, rivals such as Apple's Newton have started to make some headway, and, more worryingly for Psion, there are several companies producing hand-held devices that use Microsoft's Windows CE software. So, to stay at the front of the hand-held market, Psion has just launched its new Series 5. (There's no Series 4 as the number 4 is considered unlucky in some countries.)

The Series 5 is a completely new design. It's slightly larger than the Series 3, though it's still small enough to fit into a jacket pocket quite comfortably. The extra size allows it to have a proper PC-style keyboard and a larger screen. The idea, says Norman, is for the Series 5 to be seen as "more of a computer". He believes that many people think of the Series 3 simply as a clever gadget for storing phone numbers and other snippets of information. But, with the Series 5, Psion is attempting to produce a hand-held device that has the appearance and capabilities of a full-size computer.

Inside the case is an ARM 7100 processor, the same chip used by Apple in some of its Newton products. ("Loads of power," says Norman.) Psion spent three years rewriting its EPOC operating system for the Series 5. EPOC32, as it is now called, is a full 32-bit operating system just like Windows 95. It has a new interface with pull-down menus and scroll bars, as well as advanced technical features such as multi-tasking that allow it to perform several tasks all at the same time.

The new keyboard is a real improvement, though it's probably a bit optimistic of Psion to suggest that it could be used for touch-typing. However, the most obvious new feature is the use of a stylus to select options from the on-screen menus and to move graphics and text around the screen. The original Organiser had 2Kb of memory, but the Series 5 can have up to 8Mb - almost as much as a desktop PC.

The use of a stylus and an ARM processor suggest an obvious comparison with Apple's Newton MessagePad, which has been around for several years. But the first Newtons were too ambitious and failed to deliver everything they promised. The Series 5 may not be as innovative as the Newton, but that simply means that it is less likely to fall flat.

"We're pioneers, but we like to be on the leading edge of technology, not the bleeding edge," says Norman. And, by waiting for this technology to mature, Psion is able to sell the Series 5 at a mass-market price of under pounds 500.

Psion expects to use the Series 5 as the basis for its next generation of products. This could include new products such as Internet telephones, as well as more handheld computers.

There's only one cloud on Psion's horizon right now, and that's Microsoft. Bill Gates's software giant has produced a version of Windows called Windows CE that is designed for use in a variety of consumer electronics products, including hand-held devices similar to the Series 3 and 5. There's a real threat that Microsoft could move in on Psion's market and dominate the hand-held sector.

Norman argues that CE could be good for Psion, since Microsoft's massive marketing power could boost the overall market for hand-held devices and allow Psion to grab a share of this growing market.

Withstanding the onslaught of Microsoft will be Psion's biggest challenge in the years ahead. It would be nice to see it succeed, and to have at least one big British player in the computer industry in the next millennium. So, in a few years time, I look forward to bashing away on a shiny new Series 6 - this time with a real touch-typing keyboard, guysn

Psion Series 5: 4Mb version - pounds 439 inc. VAT; 8Mb version - pounds 499 inc. VAT.

Who will get their fingers burned?

Psion is the world's biggest manufacturer of hand-held computers, but it will have lots of competition in the next few years. After a severely shaky start several years ago, Apple's Newton products have matured impressively. The new MessagePad 2000 and eMate are selling well in the US and Apple has decided to spin off its Newton division as a separate company that will concentrate specifically on the hand-held market.

US Robotics has carved out a small niche with its Pilot range. The Pilot is a small hand-held device with handwriting recognition similar to that of the Newton. It's cleverly designed and is good for storing notes and contact information, but it doesn't have the computing power or communications abilities of the Newton and the Psion Series 5.

The biggest challenge to Psion comes, not surprisingly, from Microsoft. There are several companies planning to use Microsoft's Windows CE software in new hand-held devices. Casio's appallingly named Cassiopeia has received a lot of publicity, although it won't be on sale in the UK for a couple of months. Other big names such as Hewlett-Packard and Sharp are also producing their own CE-based devices. The big selling point of these devices is that Windows CE allows them to run "pocket" versions of Microsoft programs such as Word and Excel, and to transfer files to PCs running the full versions of these programs. Microsoft hopes this will appeal to the millions of people who are already using its software on their desktop PCs.

Psion's argument is that there are also millions of people who aren't PC users but who could use a small hand-held device at work or as a personal organiser.

These people don't care about using Microsoft programs and Psion hopes that the overall superior design of its products will enable them to compete against Windows CE.

Cliff Joseph