UPDATED 13:14 EDT / JULY 01 2010

HP Palm Analysis: HP Finalized Palm Acqusition – It’s All About SmartPhones and Edge Devices

image Today, HP today announced it has completed its acquisition of Palm Inc. at a price of $5.70 per share of Palm common stock in cash.

Back in March SiliconAngle was the first to accurately report that HP would be buying Palm. We have been covering this story from that point forward.  HP then went out and did the deal which caught the industry by surprise.   Given the marketplace velocity and Palm’s history of speed and lack of marketing, There was no doubt in my mind that Palm would be sold. I don’t think that they could have recovered, and it was widely known that they were on the block to be sold.

In the new Palm under HP the former Palm Chairman and CEO Jon Rubenstein will report to Todd Bradley who is the executive vice president of HP’s Personal Systems Group. Bradley and now Rubenstein (aka Palm) will be responsible for webOS software development and webOS based hardware products such as smartphones, tablets, notebooks, and anything net connected like sensors or other personal or home devices.

HP has a big consumer campaign yet no consumer play in mobile and no OS plans.  HP with Palm can move fast with relevance in the mobile consumer game with a product and OS that can integrate across HP consumer and cloud business.  More importantly, be an option for their partners.  According to my sources close to HP, they plan on releasing later this a tablet to for consumers and the enterprise. This week Cisco announced that they are putting out an iPad competitor for the enterprise called Cius.

According to HP they released the following statement

The combination gives HP significant headway into one of technology’s fastest-growth segments with Palm’s innovative webOS platform and family of smartphones, plus a rich portfolio of intellectual property from the smartphone pioneer.

HP’s global scale and financial strength plus Palm’s award-winning webOS experience, as well as its acclaimed Pre and Pixi smartphone product lines, enhance HP’s ability to participate more aggressively in the highly profitable, $100 billion smartphone and connected mobile device markets.

“With webOS, HP will deliver its customers a unique and compelling experience across smartphones and other mobility products,” said Todd Bradley, executive vice president, Personal Systems Group, HP. “This allows us the opportunity to fully engage in growing our smartphone family offering and the footprint of webOS.”

“With HP’s full backing and global strengths, I’m confident that webOS will be able to reach its full potential,” said Rubinstein. ”This agreement will accelerate the development of this incredible platform with new resources, scale and support from a world-respected brand.”

SiliconAngle contributor Jeff Nolan liked this deal from day one.  He posted his opinion and analysis here.  As we previously reported by Jeff, maybe this isn’t about smart phones at all? Put another way, of course this is about smart phones.

The value of Palm to HP goes way beyond smart phones. Arguably the two assets that Palm has which are worth something are the credibility of the Palm brand and the critically acclaimed (by geeks that is) WebOS.  As Apple and Google have proved with the iPhone OS and Android respectively, there is nothing about these platform operating systems that requires a voice communication capability be attached to them… in other words a smart phone doesn’t have to be a phone.  It can be any device connected to the Internet either consumer or enterprise.

HP already has a tablet and netbook business, one that depends on Microsoft, and I can imagine the frustration that HP executives must feel to have invested so much into that line of business yet have it muddle around in the back of the pack with regard to mindshare. Similarly with smart phone handsets, HP has respectable entries and while it’s long odds that HP would walk away from Windows Mobile, especially on the verge of Windows 7 Mobile.

It’s clear that HP wants more control over their OS platform for these devices.

Furthermore, the market has declared that they are welcoming of competition at the platform OS level, using Windows Mobile is no longer a safe choice for handset makers and arguably it is a liability as consumers, business and mass market alike, view this as the regressive choice.

There are risks, of course, and if building out the required app marketplace around WebOS were easy then Palm would have done it, but the core risk is that the market consolidates around Android and iPhone OS for tablets and other types of mobile web devices and being 3rd or 4th in that market means you aren’t in that market. In such a scenario HP is in big trouble because they own the mobile OS, which means hitching their wagon to Android becomes problematic (HP already has an Android netbook but is a minor entry in their offering so I expect it will go away now).

All things considered, the risks are significant but the market is still in the formative stages and I doubt it will be winner take all like desktop computing was. The value of the acquisition is roughly 1% of HP’s market capitalization so from a financial standpoint they are not exposed like they were with Compaq,in other words investors will give them a lot of latitude as they make this work and investors will clearly appreciate that HP has elevated themselves into a new peer group with Google and Apple for the mobile marketplace.

Palm – A Move To Counter Cisco

Lets not forget about Cisco.  We all know the war is in full swing between Cisco and HP.  Cisco has been trying to be a consumer company in a big way.  The Palm deal gives HP the dream product to counter Cisco – a mobile edge device and OS that can integrate into their open end to end network, computing, and video (rich media) play.  Specifically, HP can counter the hype we’ve seen from Cisco with the Flip camera, which added more capabilities this week at the Cisco Live event – here is an analysis on Cisco’s latest moves from industry analyst Stu Miniman.

It’s All About The OS – Apple and Google Setting The Pace

What really matters is the OS.   HP has a chance to really be strong here.  We see why by observing how fast Microsoft Kin failed.  In a record six weeks the Kin was a stink bomb.  Why? Because the OS was old which is the main reason that Microsoft is betting the ranch on the Windows Phone 7 which will be a complete rebuild.  Not some old PC based OS.  The mobile OS has to be build for what the mobile user wants.  Apple nailed this and so did Palm.  Android is moving fast to catch up.

Apple is the shining star in mobile OS and Android is fast pulling up from a distant second to Apple.  Apple has masterfully innovated through their iPhone OS and complementary applications such as iTunes and the AppStore. Apple created an entirely new and highly profitable business model with these products.  They then ported the same technology to two additional platforms in the iPod Touch and the iPad and further extended their reach.  In fact their OS and infrastructure was so revolutionary that they have made few changes to it since the launch in 2007 and it still is the leader.

Clearly Apple re-thought smartphone technology and the market and left competitors struggling to catch up.  Competitors have adopted different tactics to address the challenge.  Some like Google with Android, Palm with WebOS and soon Microsoft with Windows Phone 7 have adopted to completely re-write their OSes to compete with Apple.  I think that this is the best strategy because it enables them to learn from Apple and take advantage of the newest technologies in software and hardware.  HP completely validates this notion with buying and now closing the Palm acquisition.

We will be watching how HP leverages Palm to compete across their multiple of markets.


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