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.
HP Looks for Smartphone Success with Palm Devices
5. The HP Slate might have a cousin
The HP Slate, which boasts Windows 7 and several other features consumers might like, is poised for its release later this year. But HP’s decision to acquire Palm might also help it offer its own operating system in a tablet to compete with the iPad. It’s entirely possible that HP will use WebOS in future iterations of tablets to help it compete more effectively against Apple. It makes sense. By owning WebOS, HP won’t need to pay a licensing fee to Microsoft. Plus, it can exercise full control over the OS, providing it with a greater chance of taking on Apple. Look for WebOS to make its way to tablets.
6. HP will drastically change Palm’s strategy
Palm’s strategy just wasn’t working. The company came up with a fine operating system, but delivered two phones that didn’t do anything special. Plus, it put the Pre on Sprint’s network, which only further damaged its chances of competing with the iPhone. HP will likely do nothing of the sort. Look for the company to continue selling Palm devices, but drastically change the way it operates. If nothing else, HP understands what it takes to be a success in a crowded market. It will probably follow a similar strategy in the mobile space to get the Pre and Pixi back on track.
7. It might not revive HP’s mobile standing
At the same time, there is a chance that HP’s mobile division won’t see much resurgence in the market after the company implements its new strategy. We can’t forget that Apple is preparing to release a new version of its iPhone OS, as well as a new iPhone. Microsoft is poised to offer up its Kin smartphones and Windows Phone 7. Even RIM is releasing a new version of its operating system. At this point, the Pre and Pixi are also-rans in the market. And WebOS is light years behind the leaders in terms of market share. Unless HP knows something that Palm’s executives didn’t, it’s possible that Palm won’t be able to revive HP’s mobile division.
8. Palm phones will still be out there
For the time being, Palm devices will still be available on store shelves. The only way HP’s acquisition of Palm made sense was if the handset maker continued to sell the Pre and Pixi to consumers. If HP decides to take the devices off store shelves and totally revamp Palm, it would be disastrous. So, those who are thinking about buying a Pre or Pixi shouldn’t worry about it being discontinued anytime soon. But be aware that this situation could change depending on HP’s product marketing decisions.
9. HP is officially an Apple competitor
HP’s acquisition of Palm makes one thing abundantly clear to all who have been analyzing the tech industry: HP has put Apple in its sights. Whether it will use Palm to compete with the iPhone or use WebOS to take on the iPad, HP is gunning for Apple. For now, Apple won’t need to worry all that much, since HP has some significant work to do just to catch up. But make no mistake that HP wants to beat Apple badly. And it paid $1.2 billion to do it.
10. The future is in doubt
In the end, we just don’t know what the future will hold for Palm or HP. Although the acquisition seems to make sense for both companies, there’s no telling if HP will make the right decisions to revive the Palm brand. There’s also no way to know if the Palm products marketed by HP will appeal to consumers any more than the earlier products did. Both Palm and HP have a spotty track record when it comes to mobile strategy. Both companies have enjoyed success and endured defeat. Whether or not they can work together this time around to revive their businesses remains to be seen.