Can the news get much worse for makers of handheld computers? According to a study published this week by researcher IDC, sales of personal digital assistants, such as palmOne's (NASDAQ:PLMO) Tungsten and Zire models, declined year-over-year for the fourth straight quarter, to 2.8 million devices. More than 9 million units were sold during 2004, but that still marks the third straight year of decline.

palmOne beat out competitors Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL), which both lost market share. But the handheld pioneer increasingly appears to be the best in a terrible market. For example, palmOne's shipments were down 11.1% year-over-year, offsetting an otherwise impressive 59.5% sequential sales gain.

The problem is smartphones. Popular devices such as Research In Motion's (NASDAQ:RIMM) BlackBerry and palmOne's own Treo appear to be replacing the need for PDAs. Indeed, a separate study published by U.K. researcher Canalys says that Nokia (NYSE:NOK) shipped a record 4.9 million smartphones during the quarter. That accounted for 45% of all mobile device shipments. palmOne placed second with 1.5 million handheld and smartphone units, while Research In Motion was fourth at 826,000.

Clearly, the market is in the midst of a dramatic shift away from PDAs, except in cases where the devices are designed to fulfill a specific task -- as a global positioning system, for example. That's bad news for palmOne, but at least it has a very popular smartphone to fall back on in the Treo. HP, the No. 3 mobile-device vendor according to Canalys, has no such cushion. Nor does Motley Fool Stock Advisor pick Dell.

And that's what makes me wonder whether the palmOne news is actually good. Seriously. People have made fortunes by investing in unloved stocks of good companies in rotten industries. Remember Nucor (NYSE:NUE) in steel? Take a look at how that worked out. Could palmOne deliver similar returns? It's certainly possible. No, it doesn't seem so now, especially given current inventory issues remain and the recent management shakeup. Those unfortunate circumstances have conspired to send the shares spiraling lower in recent months. But it's situations like these -- when the storm clouds settle in over a stock -- when cheapskate investors like Warren Buffett, David Dreman, and even our own resident value expert Philip Durell start to get interested. Maybe it's time you did, too.

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Fool contributor Tim Beyers has so far refused to buy a smartphone, but that doesn't seem to be stopping everyone else. Find out what all the fuss is about at our palmOne and Research In Motion discussion boards. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can also see what's in Tim's portfolio by checking out his Fool profile. The Motley Fool has a disclosure policy.