HP's Palm Acquisition Could Affect Microsoft, Tablet PCs

Hewlett-Packard's $1.2 billion Palm acquisition could change the landscape of the tablet PC market, especially if HP decides to incorporate the Palm WebOS into future devices. Analysts suggest that the Palm acquisition supports the rumors that HP's so-called Slate tablet PC, reportedly running Windows 7, has been shelved. In theory, Palm's mobile operating system would allow HP to build a tablet that minimizes the load on processor and battery. Meanwhile, Microsoft's decision to end its Courier project suggests the company's retreat from the tablet PC market, which has been heating up thanks to massive sales of the Apple iPad.

Hewlett-Packard's acquisition of Palm for $1.2 billion is widely expected to change the smartphone landscape, not to mention save the Palm brand from implosion. What's less certain is how the deal might affect the nascent tablet PC market.

HP has a number of decisions confronting it, including how to best integrate Palm's products into its existing channels. In addition, HP finds itself the new player in a smartphone market that's increasingly become a competition between Google Android and the Apple iPhone. But HP executives are also likely calculating how its newest software asset, the Palm WebOS, can help it with regard to tablet PCs.

Unconfirmed rumors suggest that the expected HP Slate, a tablet PC running Windows 7 and equipped for video conferencing, has been canceled. According to analysts, this may be a direct consequence of the Palm acquisition.

"HP's upcoming Slate tablet was originally expected to run Windows 7 OS, although using Windows 7 would translate to a higher cost to the consumer and could mean more strain on the processor," Anna Hunt, an analyst with IMS Research, wrote in a May 3 research note. "The tablet market will likely see devices at sub-$250 price points within a year's time ... therefore suppliers must be very aware of lowering costs while maximizing performance and end-user experience."

In addition, using Palm WebOS for a tablet might open the door for more application development. "WebOS is an extremely easy platform for apps developers," Chris Schreck, an analyst with IMS Research, wrote in the same May 3 note. "It uses standard development languages already common among PC developers. If HP can create a compelling tablet offering that people are willing to buy, the barriers to entry might be fairly minimal."

Another analyst suggested that the ability to create a Palm WebOS-powered tablet could have been one of the prime motivators behind HP's acquisition.

"TBR believes Palm's WebOS will provide HP with a platform, and potential differentiator, in the nascent tablet computer space," John Spooner, an analyst for Technology Business Research, wrote in an April 30 research note. "Given that no single manufacturer or OS yet dominates the tablet computing space, HP can couple the capabilities offered by WebOS with its own design expertise to become a key player in this emerging market segment. Here too, the acquisition of Palm gives HP the ability to leverage the Palm developer community to create applications and services that make an HP-Palm tablet relevant while fending against the iPad."

Spooner posited that the introduction of the Palm WebOS in tablet form could threaten Microsoft's future attempts to move into the market.

"HP's current tablet with Microsoft Windows has not been well received by reviewers, and TBR believes the Windows PC operating system does not lend itself to a touch-screen tablet experience," Spooner wrote. "Microsoft itself is finding the tablet PC market more complicated than expected." In the end, he concluded, "We believe a WebOS tablet will be better received than a Windows tablet, which may lead to adoption of WebOS tablet PCs in the enterprise."

If HP has decided to withdraw the Windows 7-powered Slate from production, it represents something of a black eye for Microsoft. During January's Consumer Electronics Show in Las Vegas, Microsoft CEO Steve Ballmer revealed a prototype of HP's device during his keynote, highlighting its ability to display ebooks and play movies. In an April 5 post on HP's Voodoo blog, Phil McKinney, vice president and CTO of the company's Personal Systems Group, suggested that a Windows 7-powered device, equipped with Flash, would provide an "ideal mobile experience" unmatched by Apple's iPad.

Whether HP decides to introduce only a tablet running Palm WebOS, or versions with both that operating system and Windows 7, it faces tough competition from Apple, which announced May 3 that it had sold 1 million iPads in the 28 days since releasing the device.

But HP's challenges in the tablet PC space may be minor compared with those facing Microsoft, which has killed its much-buzzed-about Courier tablet project. Based on images and video leaked on tech blogs over the past few months, Courier incorporated two touch screens that folded on a central hinge, like a book, and allowed users to scribble notes or drawings in addition to reading ebooks and Web surfing. Microsoft, however, declined to officially acknowledge the project's existence until now.

"At any given time, across any of our business groups, there are new ideas being investigated, tested, and incubated. It's in Microsoft's DNA to continually develop and incubate new technologies to foster productivity and creativity," Frank Shaw, Microsoft's corporate vice president of communications, said in a statement announcing Courier's demise. "The Courier project is an example of this type of effort and its technologies will be evaluated for use in future Microsoft offerings."

What those offerings will be, however, is not readily apparent.