We said here that Palm was the likely first casualty of the 'bloodbath' in smartphones in 2010, as the battle is joined by ever more giant global players and the margins are squeezed. Today Bloomberg reports that Palm has hired Goldman Sachs the investment bankers to help sell the company. The speculation is that Lenovo and HTC are the top runners for buying Palm. Of course then many are joining in suggesting many other possible candidates to buy Palm. Most of those suggestions do not make sense. Lets do a quick run-down of the major phone makers who seem to have an interest in smartphones, and which of them might want Palm.
First a general disclaimer. Corporate deals are often made for reasons other than perfect market logic, where a given CEO of one party or the other may want something in terms of achieving greatness. Building empires etc. So its possible that some company steps up simply to try to grow their own company size, sales, market presence in mobile etc.
Secondly, Palm has clearly been in the smartphones space for a long time and has very competent software engineers and many very valuable sales contacts especially to the difficult-to-penetrate North American mobile market. So Palm could be bought not for its smartphones and its operating system, but for its staff and sales contacts. That would then be far more an 'internal fit' issue. Mobile engineering competence is rare, expensive and difficult to find, far more so than say standard PC/IT/internet competence. So even a mobile giant like say Nokia might be tempted to snap up Palm just to get a quick 'mass recruitment' for a given competence area, if the giant company felt it had a deficiency in that area. But these reasons are not related to how good or bad Palm is as a phone or operating system. Lets examine the likey 'synergy' and what impact a Palm acquisition would have on the major brands in mobile and smartphones. I'll go down in smartphone market share size.
And so we understand, who is Palm? They have been an iconic PDA maker who moved to smartphones early and at one point were the world's second largest smartphone provider. They recently released what many thought was an excellent new Palm operating system. But as a manufacturer their role in mobile has been shrinking and they are very much a marginalized bit-player in smartphones. They sold under a million smarpthones per quarter and this Spring their sales were going so badly that they put their factory staff onto extended leave just because they didn't have enough demand for their products. There is ample supply of un-sold Palm devices in the sales channel and Palm has had several years of consecutive loss-making quarters. That is why it is on sale today. And Palm has no meaningful market share outside of North America. They have essentially only a regional footprint, albeit to the second largest smartphone market in the world, North America (Europe being larger)
Now, when we see that Samsung, the fifth largest smartphone manufacturer, for example sold 7 million smartphones in all of 2009, then one might think almost all 'second tier' smartphone makers behind Nokia, RIM and Apple, should be eager to add 3 million or so smartphone unit sales to their market share and gain access to America and pick up a 'modern' operating system too while doing that. But remember, this is a sales-is-declining while making tons of losses - manufacturer. It is in very bad shape from a business point-of-view. Who wants such a sick puppy? And even if the Palm OS is hot and modern, now is not a good time to try to take that and replace almost any legacy OS. So lets examine.
NOKIA - world's biggest smartphone maker with 4 out of 10 smartphones sold. Most of Nokia's smartphones use the Symbian OS, which is closely affiliated with Nokia today (it is an open source non-profit Foundation but Nokia bought out the previous partners in Symbian so it is 'influenced' by Nokia no doubt). Incidentially, Symbian powers many other phones by other smartphone makers like Samsung and Sharp, and total Symbian 'non-Nokia' smartphone sales are bigger than all of Palm sales. Many grumble and complain that Symbian is very long in the tooth and look longingly at more modern smartphone OS's - like that of Palm.
Nokia has been a near-universal global success in smartphones except in the USA. So on the surface of it, Palm would seem like a great fit. But it is a total non-starter. First, Nokia has already spent a ton on Symbian, made it open source, and has set a strategy to push Symbian down into mid-price and eventually even low-cost handsets. The Symbian eco-system has a vast developer community with tons of apps and software. None of that would enjoy disruption of replacing it with Palm (not acceptable) or 'integrating' with Palm (costly, time-consuming). And the killer is Meego, Nokia's premium Linux based smartphone OS for its top-end phones. Nokia's smartphone OS platform strategy is set, and Palm would have no fit there whatsoever.
What of entry to US market? Sounds good yes. But the US market is ruled by four carriers, and they have only a handful people who make the handset buying purchases. Just by purchasing Palm would not change their minds in any way about Nokia as a handset provider. The US carriers do not get along with Nokia (and vice versa) and just purchasing the Palm brand would not help at all mend those fences. The US carriers don't want Nokia in their back yard and if Palm was rebranded Nokia, it would get just as cold a shoulder and lose what remains of its US market share in a matter of weeks. The Palm-Nokia merger - to gain US market share would be a disaster for both companies.
RIM - Blackberry is the interesting black horse. There has been a lot of speculation in the past year or two that RIM migth buy Palm, so I would guess that this has long since been analyzed in Waterloo Ontario, but it could make sense. Not strongly, but as a long-shot. Certainly would make sense for Goldman Sachs to make a pitch to RIM and try to get them interested and into the bidding game. Why RIM? The Blackberry is iconic and trusted and a 'system' not just consisting of the smartphone its OS and applications, it also has its servers over in Canada that handle Blackberry's messaging traffic, its security systems etc. It is a finely tuned refined and powerful solution to do email at a very high level of secure mobile access. But the Blackberry OS was not designed to be a media consumption and internet surfing, application installation friendly and touch screen friendly consumer OS. If RIM felt that they wanted a 'quick' jump ahead of some competitors to a modern OS for a 'next gen' Blackberry so to speak, then the Palm OS would make sense. Meanwhile they'd gain some US market share in the short run, where Blackberry has clearly peaked in US market share and needs now world expansion to keep their growth rates continuing (and Palm can't immediately really help them there, obviously). It would be a costly and disruptive change to RIM but would give them elements to a future OS. Obviously that future OS would need deep integration with Blackberry's current systems so it wouldn't be cheap. I don't see RIM buying Palm but they could make good use of it.
APPLE - would have no use for Palm at all. They march to their own tune. They have very intense Apple-insider view to what the world should look like, and have been developing the Mac OS/X to mobile to fit their particular needs. They would have no interest at all to try to mesh that with the Palm views. Similarly nearly half of Apple's business comes from the USA, they need help expanding abroad, not expanding in America.
HTC - is apparently one of the two hot targets. HTC had struggled in 'eternal also-ran' status for most of the decade when they built smartphones running the Windows Mobile OS. Now last year, when they switched to Android, HTC is finally seeing a golden era, with dramatic growth in sales and in market share. But with Android, they would be dependent on the evolution and success of the Android platform, and would not have the ability to differentiate significantly from other Android handset makers like Samsung, SonyEricsson, Motrola, LG, ZTE etc. I wiuld guess that the hunger within HTC has grown, and they see that all 3 of their larger rivals make their own OS. It may be a thinking also, that you are really not a 'proper' smartphone maker if you use someone else's OS. And no doubt the experiences of promises and disappointments with Microsoft have been considerable over the years (why else dump them so obviously and switch to Google Android). HTC would not particularly need the US market access, as HTC sells most of its phones in the USA and is three times the size of Palm by unit sales. As HTC and Palm have been in the smartphone wars for very long, they also know each other pretty well, as rivals. I am sure there is a healthy amount of respect at HTC of Palm, and especially I believe they saw and appreciated how advanced the new Palm OS was. It could be a good acquisition to the management at HTC to take over a long-time rival, while adding a missing part to HTC that it could use. On the down-side there is Palm's losses and HTC is a far smaller company than most mentioned in this blog, so carrrying the losses would be a big burden.
SAMSUNG - A year ago, Samsung would have been a near-ideal buyer candidate. Rather than build their own Bada OS, why not buy Palm and have a ready OS with a developer community and grow Samsung's market share significantly in the process. Samsung is big in the USA, so it does not really need Palm there, and now that Bada is being developed and smartphones on it being launched, there is no place for Palm at Samsung. Besides, Samsung still supports 3 other OS's - Windows Mobile, Google Android and Symbian, and as these all draw resources, its likely that over time Samsung will cut some of those not add more platforms to support, as it will of course remain committed to its own Bada into the foreseeable future.
FUJITSU - Japan's biggest smartphone maker was rumored very much last year, to want to expand its smartphones and its overall mobile phones to the world outside of Japan but its been very silent this Spring. Maybe Fujitsu evaluated the market for this year and saw it will be brutally expensive to be a newcomer to the world smartphone market and decided to shelve their plans. If they are serious about returning, Fujitsu would be one of the very dark horses, but Palm would give them an instant credibility outside of Japan and give them a solid opening to the US market.
MICROSOFT WINDOWS MOBILE AND PHONE 7 - Microsoft used to only make the smartphone OS, but recently announced they are about to release actual Microsoft branded phones (manufactured by Sharp of Japan). Microsoft's old Windows Mobile OS is growing very tired and has lost market share very dramatically. A year ago it might have made sense for MS to go pick up Palm and turn it into the new Phone 7 OS, but today as Phone 7 is well in development, it would be dumb by MS to buy Palm and try to integrate the two. Microsoft would gain some sales out of Palm units yes, but looking at how long it took Redmond to figure out how to turn their Danger acquisition (makers of the Sidekick) into a phone strategy, I don't see any sense in buying Palm now.
GOOGLE ANDROID - The one company that absolutely has no use for Palm right now is the hottest OS in smartphones, Google's Android. No matter that Google's own 'superphone' the Nexus One (manufactured by HTC) refused to set the world sales numbers on fire, there is a galactic army of Androids headed to a planet near you, that Android is blazing up the sales charts with ever more smartphones sold. Of the world's top 10 moblie phone makers (not just smartphone makers), numbers 2, 3, 4, 5, 6 and 8 are all providing Android handsets this year, plus a slew of newcomers in smartphones from Dell to Lenovo. So Android is hot, growing very strongly, and any Palm tossed into the mix would just mess up the message. Don't mess with success, not when its this hot..
MOTOROLA - The world's largest handset maker 12 years ago and still second biggest with 21% market share only three years before, is now disappering from sight, ranked number 6 on the world stage, with 4% market share. Motorola could have been a useful target a year ago, but since then Motorola rolled all its eggs into one Android basket. They didn't anticpate so many rivals to also join the Android army and now are lost in the shuffle. Motorola has been making losses, is being divided into two corporate entities and is under extreme cost-cutting measures. This is not the time to buy another loss-making rival. Palm's OS benefits would arrive far too late to make any impact to Motorola's deperate market situation, and yet another shift to a new OS would signal utter confusion to any Moto partners. And Palm would only help in US market, where Moto needs no help, Moto is bleeding in all international markets.
SONYERICSSON - could be a very dark horse. They betted 'wrong' in the smartphones vs featurephones gamble, and their very short-lived market surge with Walkman branded music oriented featurephones vanished overnight when the iPhone was released. SonyEricsson should be thinking of how to get back into the smartphones race (they have made some of the world's best top-end smartphones, many far more expensive than the iPhone, on the Symbian OS to very loyal customers). SonyEricsson has recently made big announcements in the Android space and has a rumored PSP phone in the making. Would Palm fit in here? If SonyEricsson is really serious about remaining in the high end of the mobile phone market (where it tended to be in its history), then Palm could make sense. It would also add to SonyEricsson's very modest US market share. But SE is making losses. Could they absorb Palm and its staff and further losses. Both Ericsson and Sony as SE's parents would need to be sold on the synergy which is not obvious.
LG - The world's third largest phone maker, as big as SonyEricsson and Motorola combined, but differing from both of those more traditional phone making brands, South Korean LG is profitable. And it is conspicuously absent from any speculation of making their own OS. LG currently offers several Android smartphones but also supports other OSs. There is a close rivalry with South Korean Samsung. I would guess that Samsung's Bada strategy, and Samsung's commitment to sell 18 million smartphones this year (would have placed them in solid 4th place in 2009) has probably shook LG's management. They must have calculated and considered the costs of 'copying Samsung' ie creating their own smartphone OS. So far LG has said nothing at all in that direction. But LG competes very strongly with Samsung in the US phone market. Palm would be a good fit to 'gain' on Samsung in the US market, while giving LG instantly its own OS. And its profits could absorb Palm losses rather easily. The main point is that LG has not suggested at all, that it had any aspirations of ever making its own OS. Yet it could be a dark horse.
ZTE- The Chinese cheap phones maker is gobbling up market share in many Emerging World markets tu also has some low-cost smartphones that it sells on Android. If they took Palm, they'd gain a lot of high-end visibility and gain a strong foothold into the US market. They do not have a history of operating US companies so there would be likely some management integration issues. And ZTE's total smartphone output is so modest currently, that it might be a very costly 'luxury' to have their own OS in Palm. Still, ZTE could be a dark horse.
LENOVO - Lenovo is mentioned as a target by the Bloomberg piece and it seems instantly very good as a a fit. Lenovo has been turning up the rhetoric about how important smartphones are in the computer industry (witnessing the differrence in the Asian market far more glaringly than the US PC makers may see in their home markets). WIth the legacy of the old IBM notebooks division, Lenovo will no doubt have inherited a lot of that mid and senior management who saw how fatal a strategic mistake it was for IBM to hand control of its PC operating system to a small start-up called Microsoft. So there is no doubt a particular emphasis on 'we need to own the OS' which may drive Lenovo's interest. Lenovo has a history of taking over US companies and making that acquisition work and building the company into a powerhouse. And Palm would instantly help Lenovo gain a big foothold into the hot US smartphones market. They'd have the added synergy of the marketing message that if smartphones are computers, and IBM was computers, now Lenovo is IBM and Lenovo is of course smartphones. Kind of claiming IBM leadership in smartphones, something that would resonate rather well with US clients, especially in business-oriented smartphones.
DELL - if the argument works for Lenovo, why not Dell? I think the same logic is there, would be as good a fit and would instantly upgrade Dell from the dozens of nobodies in smartphones to a Top 10 maker with strong US sales channel.
HUAWEI - And if it works for ZTE, why not Huwawei? If ZTE is a dark horse, then Huawei would be in the same cast, also offering Android devices today but wishing to be bigger on the global stage. Huawei is also the world's largest supplier of 3G datacards for laptops, so a sales synergy for business users, get your 3G datacards for your laptops, and your (Palm) Huawei smartphones from the same guys.
SHARP - Sharp is making a clear come-back to the world stage of smartphones with the Microsoft Pink series of QWERTY smartphones. It could be a rather cunning plan to then go buy Palm, to offer smartphones on that platform while not having the same OS as Microsoft's Pink phones. A very dark horse too.
There are still many more like Kyocera and INQ and Sendo etc. But these are very very very unlikely buyers being small and having shown no recent significant interest in this space.
That is how I see it. Lenovo seems stronger of the two, HTC vs Lenovo. LG could be a bigger catch if they feel like biting, RIM could see some sense, and Dell could also be strong. Sharp, ZTE, Huawei maybe. I certainly don't see any chance of Nokia, Apple, Samsung, Microsoft or Google buying Palm for its phones or OS.