On Wednesday, the mobile world was rocked with news flailing phone maker Palm had been snapped up by the world’s premiere computer maker Hewlett-Packard for a cool $1.2 billion.
Palm had been officially up for sale for a couple of weeks, with suitors including Lenovo, HTC, ZTE, Huawei and others, but HP stepping in to save Palm’s day was somewhat unexpected.
Palm shareholders get $5.70 for each share of Palm stock in a cash deal, which is a drop in the ocean for PC giant HP, representing only about 1% of yearly revenues.
Indeed, HP’s absolutely gigantic global scale makes all the difference, and promises a real shake-up in the world not only of handsets, but also of tablets and other ultra-portable devices.
Young tech icon Rahul Sood, chief technology officer for a former HP acquisition, Voodoo (now HP’s Voodoo business unit), told RCR the acquisition was “incredibly accretive for HP.”
“I never thought I’d see the day when HP would have their own OS, and a nice one at that,” he told us, adding that he believed developers would now flock to design apps for WebOS, for one reason alone: opportunity.
“Literally thousands of apps are being developed for Apple and Google’s ecosystem every week – and quite honestly they should think about getting in line NOW for WebOS,” he told us, explaining “the opportunity for developers to create and self-publish their titles on Palm’s Web OS could now go up exponentially.”
“Palm phones are very good, and likely the enormous scale of HP will only improve them.”
Across the board, tech analysts seem to agree with this sentiment. Palm, they say, has a compelling OS, but the firm’s marketing has just been too weak. 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’s massive sales reach certainly appears to be a godsend in this aspect, but on the other hand, the PC maker has not always been good at integrating acquired technologies into its business.
Still, with key management of HP’s personal systems group composed of nearly all the execs previously running Palm, including HP’s Todd Bradley, analysts like Jack Gold feel the business and operations of Palm will be 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,” says Gold.
“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.”
Also, with HP competitors like Dell, Lenovo, Asus and Acer all attempting to push their way into the mobile market, the firm needed a firm boost to put it ahead of the game. Palm provides this helping hand, while also saving HP many millions in R&D dollars and dramatically accelerating time to market.
Another win for HP is that by buying Palm, the firm has instantly acquired itself a rather substantial IP and patent base with which to fend off the likes of Apple, HTC and Google. Not only that, but as Gold points out, that self-same IP could even eventually result in license revenues to HP form some of its competitors.
According to market research outfit iSuppli Corp, worldwide smart phone shipments are set to rise to 247 million units in 2010, up 35.5 percent from 182 million in 2009. In contrast, total cell phone shipments are projected to climb to 1.28 billion units in 2010, up 11.3 percent from 1.15 billion in 2009. Palm, with its years of experience, can provide a foothold for HP in both segments.
iSuppli notes that Palm was the world’s 10th-largest smart phone brand in the fourth quarter of 2009, accounting for 1.5 percent of unit shipments, despite the firm’s share of the global smart phone market remaining flat during the past year.
With enterprise-orientated HP by its side, however, heavyweights like Google, HTC, RIM and Nokia now have a formidable competitor in Palm.
Apple, while it may not feel a hit in the smartphone space – where iPhone has an iconic value and following – may yet feel Palm’s pinch when it comes to tablets, a market in which WebOS could easily compete with both Apple’s OS and Android. In fact, HP has made no secret of its tablet aspirations, which the firm sees as a key growth area.
Tina Teng, a senior analyst on matters of wireless communications for iSuppli, notes the battle for dominance in the world of high-tech is becoming increasingly focused on the mobile Internet.
“Any company that can manage to control the flow of revenue from wireless data users— coming from subscriptions, ad sales or app store revenues—stands to benefit enormously,” she postulates.
Not everyone is convinced that HP will be able to pull it off and make Palm work in its favor, however. Steve Hilton, principal analyst, at Analysys Mason asks whether it is even possible to “take a mushy, over-ripened apple and bake a delicious pie?”
Hilton does admit that HP has a strong track record in acquisitions, speculating that the firm will likely “take the best bits of Palm technology and make them better,” so the potential for success is there, even if we will now have to wait and see how well HP integrates Palm into its mainstream operations.
Hilton also wagers “$10 that Cisco goes after a handset manufacturer within 12 months. Anyone want to take the bet?”
Win or lose, what is certain is that HP’s channel and strong ties with enterprise large and small is too powerful to ignore and Palm would have been hard pressed to find a better buyer.
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