HP announced today that it is buying Palm for $1.2 billion. This is great news for Palm, who has been searching for a “white knight” to help it out of a severe sales decline. It has been rumored that many companies were potentially looking at acquiring Palm, including Lenovo, HTC, ZTE, Huawei, etc. But HP was a surprise suitor. Palm stockholders get $5.70 for each share of stock in a cash deal. This is easy for HP as it represents only about 1% of yearly revenues. HP could have waited a few months and likely paid less, given Palm’s shrinking installed base and sales. But likely there were others courting Palm and so HP had to react now or lose the acquisition.
So why would HP want to buy Palm? There are a number of reasons.
• The key management of HP’s Personal Systems Group is composed of nearly all the execs previously running Palm, including HP’s Todd Bradley. So the business and operations of Palm is well understood.
• HP’s Windows Mobile phone business is dying a rapid death and HP would have had to totally revamp its product line in order to stay in the smartphone business. It could have designed new devices with Android or Windows Phone 7, either of which would have taken time and would be expensive. Palm brings HP a modern and competitive platform that is already designed, implemented, and in production. This saves HP many R&D dollars as well as dramatically accelerates time to market.
• HP can leverage its production capabilities to get large volumes of product into the market at low cost. Palm was not able to quickly reduce its costs and profitably compete in all areas of the market.
• HP gets a substantial IP and patent base it can use as a defensive threat against the competition (especially Apple, but potentially HTC and Google as well). This is not a trivial issue as many legal battles lie ahead in the smartphone and mobile/portable device marketplace. A strong IP portfolio that is defensible is important. Indeed, the IP may even eventually result in license revenues to HP form some of its competitors.
• WebOS could easily be re-positioned for tablets and other consumer devices to compete with Android, iPad, etc. This is a key growth area for HP. It has already shown a Windows based tablet. And since tablets are primarily front ends to the Internet, it allows HP to deploy many cloud-based services from which it can generate revenues, including those in an app store, streamed services, etc.
• HP further gets a channel through the somewhat limited carrier partnerships that Palm has currently in place. As more devices like tablets move to 3G, this is important for HP.
• WebOS could give HP an advantage in the emerging world markets (e.g., BRIC) with a highly interactive but potentially low cost to deploy platform.
Who in the market wins and loses?
• HP understands it has to compete with Dell, Lenovo, Asus, Acer – all PC vendors who see the emerging use of smartphones as threats to full size PCs and in some parts of the world as primary internet devices. This allows HP to compete with these vendors more effectively.
• Google gets a formidable competitor it didn’t have before from HP acquiring Palm. HTC gets a formidable competitor as well. And Nokia may feel the most pressure in the smartphone world.
• HP has incredible ability to get devices to consumers, so the marketing channels will dramatically aid the deployment of WebOS devices
• This is a preemptive strike against the “China, Inc.” companies that see the U.S. as a key market for their smart devices, not just smartphones.This gives HP the ability to fend off their competitive threat.
• Relatively unaffected by this acquisition will be RIM’s Blackberry and Apple’s iPhone, at least for the foreseeable future. They have their own user bases and market segments that are unlikely to find WebOS compelling. But HP wields a lot of power in enterprises worldwide, so there may be a long term effect if HP can persuade organizations to move to WebOS.
This acquisition has dramatically altered the mobile market in both smartphones and other portable devices. Overall, this is a positive step for Palm, They have a compelling OS, but their marketing has been weak. HP has a great ability to fund the much needed marketing Palm needs to get noticed. However, HP has made acquisitions in the past that did not really work out, and HP has not always been good at integrating acquired technologies in their business. While the potential for success is there, we will have to wait and see how well HP does at integrating Pam into their mainstream operations before calling this a win for HP.
Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.
