Palm revitalized? HP buys the troubled smartphone maker

So yes, the smartphone bloodbath is getting bloodier.

I speculated on who might want to buy Palm and where it might be a good or bad fit. I didn't see HP buying it. Where just about every major name in personal computing had expressed hot interest in the smartphones space from PC makers like Apple, Dell, Lenovo and Acer; to software maker Microsoft, to chipmaker Intel, to internet giant Google. So it was almost like the only giant left not mentioned with any interest in mobile phones was Hewlett-Packard. Now they have joined the races. And HP is no stranger to the pocketable computer being one of the pioneers of the PDA market (I fondly recall my HP LX 200, gosh was it really two decades ago already haha)

HP GETS PALM

What does HP get? They get a smartphone maker that has been perennially making losses. What was once the second best-selling smartphone brand on the planet behind only Nokia, has fallen out of the top 5 and sells a couple of million units per year, might be as little as half a million this quarter, and with a market share of under 2% and rapidly falling.

All that being said, Palm sells more than smartphones by all other PC makers like Dell, Lenovo, Acer - except Apple obviously - so HP does get an instant boost into the game, leapfrogging many of its rivals. A pretty nifty move by someone if the HQ of Hewlett-Packard has had a late awakening to mobile and wants to play some quick catch-up.

HP also gets a very modern smartphone operating system out of the box, one that many experts rate to be equivalent to the iPhone, some even claim its better. I don't know, I am not an expert on the matter. But nobody suggests Palm's OS to be as cumbersome and dated as Microsoft's Windows Mobile, RIM and Symbian are often accused of being. Palm's OS is up there with Google Android, iPhone OS/X and Nokia/Intel MeeGo.

HP also picks up a very strong patent portfolio in the deal, a range of very accomplished smartphone engineers and a ready sales force with established carrier relationships, that are particularly strong in North and Latin America but also have reasonable contacts to the big smartphone markets of Western Europe and some of the advanced countries of Asia. Lastly but by no means least, Palm has a ready developer community and its own reasonably large family of applications.

In effect, HP gets a 'do-it-yourself smartphone supplier kit' with all parts included in the Palm deal. And a pretty good one at that. But one which inspite of clever technology, a well established brand, a dealer network and carrier relationships, a great UI, with developers and apps - has not succeeded in the market place. And is making serious losses quarter after quarter, year after year. So HP knows it has its management work cut out for it, in revamping this company into ship-shape, and either cut resources in it (partly also by removing overlap in units that become redundant) or by generating new revenues - to turn the Palm unit profitable. It won't happen overnight, might take a year or two. And it will bring its share of pain to Palm staff, but they knew it going in, that they were facing cuts no matter who would end up buying them. HP may well be the most benevolent of the list of prospective buyers if we compare to Asian buyer candidates for example.

PALM GETS HP

So what does Palm get? It gets one of the most powerful trusted brands in technology. Dull perhaps, not as glitzy as Apple, but far more trusted and powerful global IT brand, HP is than say HTC or Lenovo or even LG. Perhaps most importantly, Palm gets time. No longer worrying from one immediate quarter to the next, will they survive, but now focus on doing great smartphones and selling them - HP wants this acquisition to work, so they will no doubt give Palm plenty of reassurances and quickly establish which teams and departments are safe and should go on with their work. And almost certainly, HP will discover there are areas where Palm may need short-term injections of cash, and here HP has very deep pockets, it can help Palm get past painful financial burdens now.

Palm gains HP's dealer network. This today is not that relevant in selling smartphones and is a lesson Dell is learning and Google has just learned, that just selling smartphones in ways that bypass the carrier/operator is not a quick win. But it is a gradually growing trend. There it does not hurt to have HP's sales network. It also means access to some of HP's sourcing. The race to get the right handset features-mix is partly a race of sourcing components. The big boys like Nokia and Samsung have the scale to crush small guys in this race from time to time and it helps Palm to have HP's purchasing muscle to help get the difficult sourcing deals.

In return Palm loses its independence and control of its own destiny. It is now one of the HP divisions and will soon be measured for how it performs against HP's other product lines.

WHAT OF NETBOOKS AND TABLETS (and second generation PDAs)

Now, I have recently been commenting on how Apple has a unique angle to the smartphones battle due to its iPod Touch and iPad being part of the iPhone family. That with cumulative shipments of about 50 million iPhones in three years, Apple's reach is far bigger for its developers, where the combined shipments of iPhone, iPod Touch and iPad exceed 80 million units. While they are not all 'phones' they are complementary and in many cases an app for one works almost as well on another. A game developed for the iPhone works often just as well on a Touch, or some eBooks and eMagazines developed for the iPad will no doubt also work to a good degree on the iPhone etc.

What of HP? Remember it is the world's biggest computer maker. It ranks 32nd in the Global Fortune 500 rankings of the world's largest companies. With 118 Billion dollars of revenues HP is nearly four times as big as Apple, and about twice as large as Nokia or Microsoft. We have a very big new rival joining the smartphone bloodbath. And yes, HP makes desktop and laptop computers and has had a long-term interest in the shrinking PC with its pioneering work in PDAs. If HP wanted, it could relatively easily deploy a range of tablets (vs iPad) and media-player/PDAs (vs iPod Touch) using the Palm OS and family of apps and developers, and obviously also HP's netbooks - and arguably have even a wider platform (when measured in types of devices) than Apple. And where smartphones are sold via carriers, the other IT is sold through computer and electronics stores, where HP has a global footprint. It would be far easier for HP to do an Apple-like family of tablets and media-player/PDAs to support Palm smartphones due to this dealer network, than for example Nokia can with its netbook and possible other devices.

On this we need to monitor the space. I think it will depend a lot on how heavy is the hype and buzz around tablets now with the iPad fever. Obviously the world has had tablet format personal computers for a long time and even with the Kindle, the tablet format was not selling many millions per year. Now it seems the iPad is single-handedly creating a new market space (typical of Apple). Who would have the size and production ability to quicly deploy a rival tablet? Not many but HP certainly could. And a tablet alone is pretty pointless, it needs its apps. Here Palm gives a great head-start again.

PALM DEVELOPERS AND PARTNERS

Who gains the most in this? I think its those who invested in Palm development in the past. They saw their work product go into the black hole of vanishing market share that was Palm's performance past few years. Now they can see light in the tunnel. Whether HP can make it work or not, for now it is fresh confidence. IF anyone can, HP can save Palm's legacy and keep the platform alive, and hopefully turn it into growth.

RIVALS

This is really an intersesting twist to the smartphones bloodbath (we've had several bombshells this April already from iPhone's surprising Chinese Lunar New Year sales pattern to Microsoft's entry as real phone maker with Kin/Pink phones to Google stumbling with its Verizon and Vodafone carrier relationships.

If Palm had gone to a small smartphone maker like HTC, it would have taken probably a long time for Palm to be revitalized and its resources used fully. I think with HP as its new owner, Palm has the strongest boost to its competitiveness. As I said, the phone itself and its technology is excellent. So what Palm has suffered in, is not in the design of its product, but in the marketing and sales of its smartphones. Here again HP brings supremely competent, professional, global sales competence to support Palm's modest sales staff. HP Can be expected quickly to expand Palm's sales force and its marketing efforts (obviously rebranded as HP) and as the company no longer has to worry about where the next payroll will be paid from, HP can also recruit competent sales staff, authorize the necessary travel, and help seal the various carrier deals that this top-notch smartphone device deserves.

Palm can probably turn its declining sales into growing sales far faster than say SonyEricsson or Motorola have been able to do in the big mobile phones market, or how Microsoft might be able to turn around smartphone sales of Windows Mobile and Phone 7 devices. HP can also easily afford to take a loss on the current product line by cutting its prices to regain competitiveness, before the next products are released. This too is a tactic that only the very big players can afford to play, and HP can rather 'easily' with added sales effort and price cuts generate a turn-around in sales as soon as the third quarter of this year.

So who is hurt? Lenovo and HTC had been rumored to be very interested in Palm. I do think its surprising that Palm was sold so quickly. I would have thought there were many hungry suitors and that the bidding war for Palm would have lasted significantly longer. I am not an expert on mergers and aquisitions but occasionally I have noticed that some deals seem to be decided and then go into prolonged battles nonetheless, such as happened with Nortel. So this may not be the end of the saga for Palm, but I do think if HP gets it, Lenovo and HTC were clearly among the losers.

What of the major smartphone making rivals? Nokia? Palm won't go head-to-head with most of Nokia's smartphone family, so while N-Series will be affected and some of E-Series; the majority of Nokia's smartphones are low-cost smartphones. Besides, Palm's best market is North America where Nokia is weakest. This won't affect Nokia much.

RIM which once seemed to own the North American domestic smartphone market has seen many US based drivals rush into the smartphones space after Apple's iPhone (Google, Dell, Microsoft and HP all now with their own branded smartphones). Palm does offer business phones and QWERTY phones and with HP brand, now has strong trusted IT brand and IT sales for the corporate segment. This hits Blackberry.

Apple has what most accept is the best user experience due in great part to its operating system and user interface. Well, Palm is very much up there. Apple previously 'benefitted' from the fact that Palm was so small and weak. Now with HP support, the smartphone can take on the iPhone at least using Palm's full potential. I am pretty sure this will only be a minor nuisance for Apple where Android is the big hassle right now, but nonetheless, HP can get a big press conference when it wants and play in a different league than Palm could when facing off against Apple. HP also comes in as an 'untainted' new smartphone maker, where Apple had its troubles with the carriers, Nokia has had may over the years, and even recently Google has stumbled. HP gets a fresh sheet and in that side-by-side consideration when a random carrier considers its smartphone portoflio and strategy for the Autumn of 2010 and Spring of 2011, HP comes in fresh, and Apple is seen as most demanding. It won't win the war for HP but in some markets no doubt this will help tilt the battle in HP's favor.

HTC had just in the past few years started to put distance between it and 'the other small' smartphone maker gaining the upper hand. HTC is riding a big wave now, but HP can turn Palm quickly back into something of roughly HTC's size in total sales. This is yet another bit of bad news in what should be HTC's best year. While their growth this year will be tremendous, they are falling further back in the race as Samsung is poised shortly to pass them for 4th biggest smartphone maker.. Not happy faces at HTC.

Microsoft is probably very unhappy. Its been their annus horribilis and just getting worse. If Palm had landed in the hands of HTC or Lenovo, Microsoft could have seen Palm as a relatively weak rival and one that shifts focus away from North America, Microsoft's best market. Now Microsoft see giant HP picking up Palm and just as Microsoft releases its own-branded Kin phones, in comes HP and probably achieves equivalent level of sales on rebranded Palms as Microsoft does with Kin's. The story is not going Redmond's way in smartphones. They just can't catch a break.

Google is probably currently re-evaluating the Nexus Two strategy and plotting world domination on their lessons learned. No matter how much some may say Nexus One flopped, Google learned a lot. They are smart folks over at the Googleplex and will come back stronger. This timing actually helps deflect Nexus One gossip so they'd probably see it as a silver lining.

Samsung is busily paving the world for Bada and in typical South Korean fashion, couldn't care less how many global giant rivals are in the race, they intend to become number 1 or number 2 in the smartphones space and will hit their 24 million smartphone unit target for 2010 easily. They will focus on the lower end of hte smartphone space and always have the scale to do some end-of-year discounting for Q4 if their target seems threatened. Samsung internally will use this as motivation of why all workers need to work harder and longer. They do not know what a weekend is, or what an evening out with friends is, over at Samsung. They just work work work. And they welcome any competitors.

Yesits a bloodbath out there. Its getting bloodier. Welcome HP to my backyard haha, we wish you well. Please take the Palm legacy and use it for bringing us good innovations for the industry. We will be monitoring you. And Palm? Thank you for the memories. And our readers? Remember where you heard it first that Palm was toast this year?

Comments

[peter cowan]

interesting take. i'm certainly glad WebOS isn't going anywhere, it is really nice to use.

i am surprised to see you going with the trade press conventional wisdom that the google/verizon nexus one deal was a "google's stumble". google lost nothing, verizon is releasing the HTC Incredible--another android phone--in a few months, that will probably sell millions through verizon stores. i am guessing that google is the one that walked away from the deal because verizon wanted to cripple the device, and google didn't want their branding on it.

in that light, it would look like a huge mistake by verizon--wasting all that time, and energy trying to build vendor lock-in into an open device, when there are a dozen alternatives out there. think about that: adding proprietary features to an open system is actually, in the long run a losing strategy--every second you spend on that software you risk a competitor coming to market with a better device sooner, and you make it more difficult to keep your devices up to date with the latest firmware. more evidence to back this up; if you hadn't noticed, google is beginning to decouple their apps from the vendors firmware distribution so they can be updated independently.

two years from now when a nexus one style phone is selling unlocked, without a contract, for $100, things are going to look quite different.

[Guillaume Beaumont]

The smartphone market is interesting because it's a proxy for the real war: which paradigm and whose ecosystem will dominate for the next 20 years of computing. The previous IBM&Clones/Microsoft model has been crumbling for about a while now, and Microsoft has been too slow to leverage their market dominance to get a foothold in the newer marketplace and they now have to play catch up.

And now, HP has just declared war on them. While their relationship is going to remain polite, and their current business relations will have to be maintained (they need one another WAY too much to break those for at least 5 years), they're entering a market, by themselves, in which there is only going to be one winner; one dominant ecosystem.

The current state of the computing market is unsustainable; it's becoming quite clear that computers right now are not what people want them to be. We all dream of a future that looks like its out of a sci-fi movie. This can only be achieved with one dominant ecosystem.

But I fail to see a vertical integration strategy from Nokia, RIM and Samsung. They're certainly contenders in the smartphone space, but this is a winner-takes-all fight, and they have little to offer other than smartphones. They would need a strong partner, one that is not already invested in the smartphone market. There aren't a lot of those left. Nokia MIGHT have Intel at best.

[netborn]

The funny thing here is that Palm has in his hands a solid OS, a non so solid hardware and a really weak go to market model.

HP (talking about smartphones) has no OS, a very weak hardware and also a weak go to market model (again, talking about smartphones). So at the end of the day what HP will need to ensure is their go to market model for the smartphones product line.

Last year when HP bought EDS it costs between 5 to 8% to hp employees (salary reduction globally), let´s see how will cost to them this year.

[Alex Birkhead]

Hi Tomi,

As usual, reckon you've read this well. My biggest questions are whether HP can actually pull this off (it could take major support) and how Microsoft fits in.

More pros: HP is a huge player in both enterprise/IS (a major MS shop, too) and telco (much stronger than Palm outside of the US -- so NOK possibly not quite as safe as you suggest), can do consumer tech (computers, printers), and has Compaq's PDA/iPAQ heritage (done hero-to-zero and enterprise handhelds before).

Totally agree that HP seems to have picked Palm up on the cheap, which suggests Dell and Lenovo may have been silly at least not to have bid the price up, and you're right that it is probably not too late to play trumps. I also hope LG, Moto, Nokia, RIM, Samsung, SE, and others don't regret letting the only OS wildcard go begging -- you've summed-up the upside really well (i.e. what could be done with WebOS given more support, time, and scale).

Ahem: Apple's 'surprising' stronger and RIM's relatively weak recent quarterly sales performances were very much in line with my expectations that you didn't take too seriously earlier this year! ;-) Can't see Apple much better than flat-lining this quarter (and could be a drop), though, which would hurt the trend, then the big question of what uplift a new model delivers. LG's sudden weakness did surprise me, but, in retrospect, perhaps to be expected due to being under-strength in smartphones and with SE seemingly steaming back (could be wrong about SE). I feel you may be giving RIM far too much credit for what in reality was a fairly flat performance (and very weak for a Q4), and dismiss competition with the iPhone too readily. I know you don't hate Apple and are no apologist for Nokia [wink], but when you do comparisons with 'NOK as King', you could give the Cupertino gangsters a bit more credit for being possible/probable top-dog in smartphone revenue and profit -- key metrics for businesses...by the way, I liked your analysis of smartphones as part of the wider computing market, and was surprised how high Apple ranked (puts the iPhone/iPad/Touch play in much better strategic perspective, perhaps).

I reckon Apple has at least another good 6-12 months (you were suggesting it was already nosediving...), based on iPhone 4 expectations, i.e. until Android gets its act together. Still reckon I'm right about iPhone and Android cracking enterprises faster than you expect, too -- basically, a new category allied to agile/cloud computing is tearing up the old rules. You're right that introducing a QWERTY iPhone would be smart (and probably a much bigger mid-term winner than than the iPad, imo), especially to take on BlackBerry and Eseries properly, but they still don't appear to be listening to the market.

This all places RIM on the edge of a precipice, imo (12m rolling volume growth very low, by historic measures); so they better do serious OS magic soon...and I still detect no signs, just totally-insufficient incremental updates (ironically, they risk an iPAQ-type oblivion). Nokia continues to tease -- will it or won't it work with Symbian for the mass market and MeeGo for the top-end -- I simply can't read the runes, so continue to believe they would be very wise to have a Plan C, like dabbling with Android (which gives added benefit of offsetting that dangerous insularity). Not yet convinced by Samsung's Bada, but they can do a good 'steamroller' trick. LG could be in a bad place, if the shine has come off its premium featurephones before it has built smartphone momentum. SE looks like it could be on the comeback trail (almost feels like LG is repeating SE's mistakes of old). Think we agree that Android is developing into a mighty dangerous ecosystem, but I reckon it needs time to really bed down (as Google corrects early missteps like fragmentation, excessive geekiness, and alienating key OEM and cellco players by being over-assertive), then looking kind of scary for everyone else.

If I understand him correctly, I totally disagree with Guillaume about there *having* to be one dominant ecosystem -- over the last decade and continuing, 'mobility', internet, open-source, UNIX/Linux, 'cloud', etc. have changed many of the rules. Terminals are becoming just commoditised platforms for browsers and web-/virtualised-apps (whether Apple and RIM like it or not), i.e., form-factor aside, fairly soon a Mac, PC, smartphone, tablet, set-top box, appliance, iWotsit, gaming console, or name-your-poison will be interchangeable for the general, mass market user. Excepting brand-loyalty and inertia, people are no longer glued to computing hardware or OSs the way they used to be, and remaining stickiness is continuing to weaken, meaning it is easier than ever to chop and change. This is also why I consider it unusually open-game in the enterprise for iPhone and Android (and, potentially, MeeGo, WebOS, etc.). Granted, we *could* end up with one dominant ecosystem, but I do hope not, partly because it's more interesting this way! Of course, things will ultimately settle down, as they did previously with many great innovations and technology breakthroughs of the past, but I think we have at least another 5-10 years before things get dull.

My tuppence-worth, anyhow -- thoroughly enjoying your posts and I'd hate it if I entirely agreed and wasn't obliged to think.

[Guillaume Beaumont]

Alex; I agree that it'll take 5 to 10 years before we have a clear winner, but I still consider that in the end, someone will have to win that war.

Basically, what I mean goes beyond the operating system choice and more into the computing paradigm.

The scenario you're describing as where we're going is Google's vision; few devices that are basically dumb terminals to cloud-based services. It's obviously not in, for instance, HP's interest to let that happen. They would rather have us buy better, stronger, faster computers or devices. So when they release a new smartphone, you can bet they'll put the emphasis on what the machine can do by itself. And in Microsoft and especially Apple's case, their vision is really one of a closed ecosystem. Microsoft has made some steps towards cloud computing, mainly because they don't want to give Google free reign, but very few bold moves that show commitment towards that path.

[Tomas - University Place, WA]

OK, I'm a Palm Pre user. Have been since it was introduced by Sprint. It was finally the smartphone that convinced me it might be worthwhile to give it a go.

Excellent operating system (WebOS), very good user interface, few real software bugs, very natural, smooth operation.

Hardware? Well, the Pre is nice looking, has a nice feel, is tiny for those who must have that, but it is also delicate. A fragile little jewel.

I'm looking forward to HP being able to fund continued development of WebOS, and hopefully be able to fund a few more rugged smartphones that use it.

I wish Palm and HP well!

[Matthew Artero]

You wrote it might take a year or two for Palm to be prifitable. They could be profitable by their very next product if it includes my user interface. My points are at my website appleiphonekiller.com

[tyres in redditch]

Definitely agree with what you stated. Your explanation was certainly the easiest to understand. I tell you, I usually get irked when folks discuss issues that they plainly do not know about. You managed to hit the nail right on the head and explained out everything without complication. Maybe, people can take a signal. Will likely be back to get more. Thanks.

[Zohar Stolar]

Thanks for that great article!

One BIG comment is about RIM's success: "RIM success stories keep coming from strange markets. ..." - Calling non-U.S. markets "strange" is:
a) not so politically correct (but who cares for that, right :-) ?
b) obscuring actual real data - these markets are growing fast enough and become more important with each year. Don't ignore them, or they'll take over you before you know it.

[Driver for HP]

I definitely your explanation was certainly easiest understand ..i am surprised to see you going with the trade press conventional wisdom that the google.
Thanks for sharing !!!!!!!

[tyres in Redditch]

Wow.. This is great! I can say that this is the first time I visited the site and I found out that this is the first time I visited the site and I found out that this topic was interesting to read. Anyway, thanks for sharing and I definitely visit here more often.

[Polly]

Definitely agree with what you stated. Your explanation was certainly the easiest to understand. I tell you, I usually get irked when folks discuss issues that they plainly do not know about.

[white iphone 4]

my comment got eaten. Anyway I wanted to say that it's nice to know that someone else also mentioned this as I had trouble finding the same info elsewhere

[Henry Peise]

The Christmas time is comming, and the most desire present i want to get, is the latest white iphone 4, can i get one? Tell you after Xmas.

[iPhone 3g Cases]

I hope you will keep updating your content constantly as you have one dedicated reader here.

[tütünex]

Wow.. This is great! I can say that this is the first time I visited the site and I found out that this is the first time I visited the site and I found out that this topic was interesting to read. Anyway, thanks for sharing and I definitely visit here more often.

[duşakabin]

by removing overlap in units that become redundant) or by generating new revenues - to turn the Palm unit profitable. It won't happen overnight, might take a year or two. And it will bring its share of pain to Palm staff, but they knew it going in, that they were facing cuts no matter who would end up buying them. HP may well be th

[formula 21 formen]

The smartphone market is interesting because it's a proxy for the real war: which paradigm and whose ecosystem will dominate for the next 20 years of computing. The previous IBM&Clones/Microsoft model has been crumbling for about a while now, and Microsoft has been too slow to leverage their market dominance to get a foothold in the newer marketplace and they now have to play catch up.

And now, HP has just declared war on them. While their relationship is going to remain polite, and their current business relations will have to be maintained (they need one another WAY too much to break those for at least 5 years), they're entering a market, by themselves, in which there is only going to be one winner; one dominant ecosystem.

The current state of the computing market is unsustainable; it's becoming quite clear that computers right now are not what people want them to be. We all dream of a future that looks like its out of a sci-fi movie. This can only be achieved with one dominant ecosystem.

But I fail to see a vertical integration strategy from Nokia, RIM and Samsung. They're certainly contenders in the smartphone space, but this is a winner-takes-all fight, and they have little to offer other than smartphones. They would need a strong partner, one that is not already invested in the smartphone market. There aren't a lot of those left. Nokia MIGHT have Intel at best.

[devlet hastanesi randevu]

s the paid toll-keepers of the "last mile" to wherever the user is, the wireless industry has been able to reap the benefits of a monopolized, closed

[tyre equipment]

My top three brands on gadgets are HP,Lenovo and Apple.Most of my gadgets were bought from them.Considering they really have one of the best and high quality phones,computers and more.