VIEW FROM THE TOP

VIEW FROM THE TOP

Palm

Palm

 

IT+Mobile

The seasons of spring and summer bring out wedding fever in many, including corporates. We have seen T-Mobile and Orange join hands, and the Conservatives and Lib Dems hugging on the steps of Downing Street. Here, we take a look at the blushing bride of the third big wedding planned for this season; Palm, betrothed to her lover, HP.

HP and Palm announced in April that they have entered into a definitive agreement under which HP will purchase Palm. Palm, a provider of smartphones powered by the Palm webOS mobile operating system, is to be bought at a price of $5.70 per share of Palm common stock in cash, or an enterprise value of approximately $1.2 billion. The transaction has been approved by the HP and Palm boards of directors.

Palm, one of the most innovative tech companies of the past decade, started off on a strong footing 10 years ago, when it was spun off from 3Com. At its peak Palm commanded around 70% of the handheld device market. Since then, however, things haven’t gone as smoothly, resulting in the business falling behind more forward thinking competitors such as Apple, RIM and HTC.

 

Palm has been failing to cover ground, despite its new operating system. In its core market in the US, Palm lost 1.8% marketshare between November 2009 and February 2010, leaving it at the bottom of the heap with just 5.4% of the market in the US, while Android switched places with Palm at 9%, increasing its marketshare in that period more than any other operating system with a leap of 5.2%.

The new webOS operating system launched on the Palm Pre with Sprint in the US in June last year, then in Canada, the UK, Ireland, Spain and Germany in October, Mexico in January, then the Palm Pre + in the US in January, and France and Germany in April, along with the Pixie and Pixie +, both aimed more at the consumer market.

Yet Paul Ghent, vice president of sales for EMEA at Palm, told Mobile Business prior to the acquisition announcement that the launch of the new operating system was never going to be an overnight triumph: “We always knew it wasn’t going to be an instant success. We are a relatively small company compared to others out there, with only 1000 people. In Europe we’re very much a start up organisation, but we’re very happy with the strong start we’re making and how we’re stacking up in reviews against other handset manufacturers.”

With this acquisition, HP is now setting itself up to be one of the largest new players in the smartphone market, which it believes it can make a big impact on. The combination of HP’s global scale and financial strength with Palm’s webOS platform will enhance HP’s ability to participate more aggressively in the fast growing, highly profitable smartphone and connected mobile device markets. Palm’s unique webOS will allow HP to take advantage of features such as true multitasking and always up to date information sharing across applications.

Former CEO at Palm from 2002 to 2005, Todd Bradley, now executive vice president in the personal systems group at HP, said on the purchase: “Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices….The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share. Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market.”

The transaction is expected to close during HP’s third fiscal quarter ending 31 July 2010. Palm’s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.

Francisco Jeronimo, research manager for European mobile devices at IDC, commented on the deal: “This is a good move for both companies. HP always struggled to grow its smart phone business unit because it never knew how to make mobile phones. The iPAQ devices never were successful, and HP only achieved 0.1% market share in 2009. On the other hand, Palm developed a good operating system but was struggling to sell its new WebOS devices, Palm Pre and Palm Pixi, because money makes the difference at point of sale. Palm‘s worldwide market share was 1.5% in 2009.

“If HP didn’t have the right products to become a smart phone player, Palm didn’t have the money to compete with Apple and RIM in the US market and to make the brand known outside its home market. This deal takes a good operating system (because that’s what it’s all about here) to the right hands and to the next level.”

In the short term, Jeronimo states that the impact of this deal will be felt in the US market and Nokia will be one of the most affected players. “When a company has a good product and the money for marketing activities, it creates a problem for its competitors. With money to invest, Palm will be able to leverage its brand, broaden its portfolio, and provide carriers with the money they need to sell devices. The pressure on Nokia will be even stronger in the US as carriers will be more confident in Palm‘s future outlook.

“Due to the wrong portfolio and a lack of carrier support, Nokia never moved from its eighth position, with market shares between 2% and 3% in the smart phone segment. This deal also puts pressure on Motorola and HTC. Again, money brings success if you have the right product, as Palm has. Motorola and HTC don’t have as much money as HP, and they will feel the pressure in this market.

“With a wider portfolio, and the right distribution and marketing campaigns, Palm will also be able to grow in other regions, such as Western Europe, where the lack of money and low brand awareness have been a clear problem getting carriers to launch its devices, although the pressure on other players will not be significant.

Palm‘s survival no longer seems to be a problem, for the time being, but one question remains: will HP allow Palm to drive the business the way it wants and back it up with cash? To HP, smart phones are not new; it always had money, but it never succeeded. Will things be different this time? Yes, if HP takes advantage of the convergence with mobile, but sticks to the business it knows best – printers.”

 

Ed Says

I think we will have to reserve judgement on this one for a while. HP has a wallet fat enough to make this purchase, and has no doubt thought through the cost of integrating the struggling handset manufacturer into its portfolio, but whether business-focused HP and not-sosuccessful Palm can match the required ‘cool’ factor that both businesses and consumers now demand on the likes of Apple and HTC-designed products, is another matter.

Palm has never hit the right button on design or quite nailed it with software compared to its contemporaries, while HP has watched the death of the PDA, and not done much else of note on the mobile front, regarding a few mobile phones that haven’t made any impact whatsoever.

But you never know. They might pull something out of the bag…