Friday, April 30, 2010

What Will HP Do With Palm?

This one took us all by surprise. The tech giant HP has announced the intent to acquire the once-hot mobility player Palm. The company has been struggling for years, living in the shadow of its former glory. Palm used to have a market cap over $30 billion 10 years ago and it is being sold to HP for a mere $1.2 billion. Palm’s roots go back to the 2000 spin-off from 3Com which got Palm via the US Robotics acquisition in 1995. Palm has pioneered the market for PDAs (Personal Digital Assistant) which were the precursor to today’s smart phones.

HP is also not new to the mobile market. As a result of the HP-Compaq merger in 2001/02, HP started selling the once leading-edge iPaq which is still being sold by HP today. In contrasts to the Microsoft Windows Mobile-based iPaq, Palm comes with its own mobile operating system webOS. Introduced in early 2009 and based on Linux kernel, webOS is considered state of the art with capabilities such as multi-tasking and advanced user experience based on HTML5 and other contemporary technologies. That was, however, not enough to rescue Palm in the face of competition with the giants such as RIM, Apple, and Google.

The big question is now what will HP do with Palm. Are they going to consolidate iPaq and Palm or are they going to keep separate product lines and hedge their bets? Consolidation is likely, in my opinion, and my chips are on Palm. That said, HP will face an uphill battle with Palm, trying to get back into the game with the big boys who are fighting it out with ferocity.

There are four, well maybe five, possible scenarios I can think of:

1. Minor improvement. This is a likely scenario in which HP puts some muscle behind Palm and succeeds to double the current market share. But that will still keep them way low in single digits, competing for the 4th position after RIM, Apple, Google, Microsoft, and Symbian. I give this option a 50% chance.
2. OEM Play. HP might have the clout to become the leading supplier for all the Asian and European mobile phone manufactures who don’t want to or cannot go with other options. Realistically, the open sourced Android and Symbian have the dibs on this space and so I’d give this scenario only a 10% chance.
3. Specialized solutions. This is going to be the likely marketing message we will hear from HP. They will talk about comprehensive stack for mobile applications, based on an on-premise or hosted infrastructure, leveraging the HP storage, HP servers, and HP management software. HP will be able to host complete mobile turn-key applications with Palm as the device, possibly customized with software and hardware accessories such as barcode scanners and mobile printers - this is HP, after all! This is not a straightforward scenario as the users will need to be convinced to embrace Palm which lacks the consumer appeal of its competitors. Therefore, I’d give it a 30% probability.
4. Home run. HP will succeed to establish itself as one of the top three players. That will mean to win over multiple of the major players – Apple, RIM, Google, Microsoft, and Symbian – which is going to be very difficult. Even should Microsoft or some other player acquire RIM, as I have suggested in a previous post, HP is facing an uphill battle here. I give this scenario only a 10% chance.
5. WebOS only. Todd Bradley, EVP for HP’s Personal Systems Group which will be Palms new home, has been quoted in WSJ claiming that HP bought Palm for the webOS alone and that it intends to use it in devices other than smart phones. While that sounds like an interesting strategy which might even succeed, $1.2 billion is a high price for a mobile OS when open source options are available. Also, HP is unlikely to walk away from the current Palm revenue of over $400 million. HP will probably launch their own tablets which might be webOS based, but that will not replace one of the previous four scenarios.

It is not obvious to see why HP acquired Palm. The mobility market represents a huge opportunity and we can expect that other players will want to have a slice of it. By the way, what will be your move, Mr. Ellison, Mr. Chambers, and Mr. Palmisano? I can’t think of any other scenarios for HP right now. Can you? Let me know your thoughts.

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