When the news broke late Wednesday night that Hewlett-Packard agreed to acquire Palm for $1.2 billion, it sent shock waves through the tech industry. The rumors about a potential Palm acquisition had been bubbling for weeks, but few believed HP would make a move for the struggling handset maker.
After all, HP is making most of its money in areas outside of the mobile market, and Palm with all of its issues could be more trouble than it's worth. But HP evidently disagreed and offered up a substantial sum for the company.
Now it's time for us to analyze what happened. Whether or not the deal was a smart one for either company is a debate best left for another day. Today, we need to examine the terms of the deal, the elements that could have played into the decision, and what the end result could be, now that the acquisition process is under way.
For Palm, it means the end of a long history of ups and downs. For HP, it means the start of a new effort in a mobile market that's becoming increasingly crowded. In either case, change is afoot, and Apple, Google, Microsoft and just about every handset maker should be keeping a close eye on what comes of it.
Let's take a look at what we should know about HP's acquisition of Palm.
1. It came relatively cheap
Although $1.2 billion isn't anything to scoff at, it's not a large sum for the tech industry. Several prominent companies in the industry are worth tens of billions of dollars. And those firms might not even have the name recognition or history that Palm does. The $1.2 billion that HP paid says more about Palm's issues than HP's due diligence. HP would have paid the right amount for Palm, no matter the price. But after dissecting the company's financials and its current standing in the market, it was readily apparent that Palm just wasn't worth the handsome price it might have commanded a few years ago. HP walked away with a bargain for Palm.
2. It's about the patents
A key reason for why HP acquired Palm is its patents. The handset maker currently holds a slew of highly valuable mobile patents that should help HP going forward. Of course, talk of patents didn't make it into the press releases or comments made by executives at either company because it's not as flashy as selling phones. But make no mistake, without those patents, HP would have thought twice about paying more than $1 billion for Palm.
3. WebOS was a selling point too
WebOS might not get the love that Palm thought it would, but it could conceivably be HP's ticket to carving out a small portion of the mobile market. WebOS is new and fresh in the mobile space. Perhaps most importantly, it's also the only mobile operating system currently being offered that can do things above and beyond what Apple's iPhone OS has been able to achieve. The biggest issue with WebOS is that developers aren't flocking to it and Palm didn't use it properly. HP must solve both of those issues if it wants the acquisition to yield a positive ROI.
4. HP wants to get in on the mobile market
Although HP still offers its iPaq line of PDAs, the company's influence in the mobile space is practically nonexistent. Thanks to smartphones (and Palm's past strategies), HP has been relegated to the forgotten company in the market. If nothing else, its acquisition of Palm shows how badly it wants to work its way back into the smartphone market. It realizes that the space is highly profitable and growing at a rapid rate. If it can make the right moves, it just might be able to regain some influence in mobile.