Much of the coverage of Hewlett-Packard’s (HPQ) $1.2 billion acquisition of Palm Inc. (PALM), announced Wednesday, had a rescue element to it: “HP Bails Out Struggling Palm,” from the Los Angeles Times, was a typical headline.
Indeed, both the price – a 23 percent premium over the share price of Palm, which had been seeking a buyer for months – and the identity of the acquirer were surprising. A long list of suitors that included Lenovo, HTC, and even Chinese networking vendor Huawei had been rumored to be interested in the Sunnyvale, Calif. handset maker; HP was rarely if ever mentioned. And Wall Street reaction to the deal has been mixed, as many question whether HP, the world’s leading maker of PCs, can catch up with Apple (AAPL), Google Inc. (GOOG), Research in Motion (RIMM) and Nokia (NOK) in the fiercely competitive smartphone market.
“Palm as a competitor to Android, RIM, iPhone, Symbian and also the ‘new’ Windows Mobile will not happen,” Ari Rabban, CEO of phone.com, told VON/xchange. “I think it is too late.”
To focus only on handheld devices, however, misses the real significance of this deal for HP. And it’s a deal that should aid competitive service providers, who will benefit from the emergence of a new mobile division within HP based around the assets that Palm brings.
A Real Ecosystem
Those assets include a Palm brand that is so devalued that HP will almost certainly deep-six it. More valuable are Palm’s robust intellectual-property portfolio, which comprises more than 1600 patents; its engineering team, which despite the recent business missteps is still highly respected in Silicon Valley; and its mobile operating system, WebOS.
The most critical element of the Palm package, WebOS is an admired platform that HP can adapt to a range of devices, including tablet PCs, “netbooks,” and a host of other connected gadgets to form a true “mobile ecosystem,” a term that has been tossed around for a couple of years now but has yet to really emerge.
“Palm brings HP a modern and competitive platform that is already designed,implemented, and in production,” wrote mobile and wireless analyst Jack Gold, in a research note. And with its large cash reserves (around $13.5 billion), its formidable marketing and sales channels, and its own R&D might, HP has a chance to create an end-to-end, fully integrated network of devices that not only work together seamlessly but are based on open standards and open platforms in a way that the iPhone, today’s dominant smartphone, does not.
“HP will be better able to offer fully integrated, turnkey mobile solutions now, across a broad range of markets,” said mobile and wireless analyst Craig Mathias, principal at the Farpoint Group, in an e-mail. “I personally believe that Web/cloud is the future of mobile apps,” and with the Palm acquisition no company is better positioned to take advantage of that future than HP.
Dumping Windows?
The most promising area is likely tablet computers, where HP has been previewing what it calls its “slate device.” Handset manufacturers got caught with their pants down in the wake of the iPhone, and PC makers don’t want to find themselves in the same miserable boat in the wake of the iPad. Apple’s new tablet computer runs the iPhone OS rather than the Mac OS, paving the way for a non-netbook “ancillary device” category that leverages a smartphone interface. It’s one that analysts think could represent a lucrative new market for PC manufacturers.
