Palm and HP: You Be the Analyst
Is HP's purchase of Palm a good deal or a bad one? How will it change the smartphone industry? The world wants to know and it's up to you to tell them. Here you'll find the issues and some analysis, but the final judgment is yours. You be the analyst.
When considering a merger/acquisition, I look at the number of things, but start with the Golden Rule of Tech: Mergers rarely accomplish what the buyer hopes in terms of opening new markets or grabbing share in existing ones. The bigger the dollars involved, the more reason to be suspect.
Thus, every merger starts from behind, and this one is no different. The bias is toward cynicism, not sweetness-and-light. History is broadly against Palm and HP.
With that in mind, here are the key issues to consider in narrowing down to whether HP/Palm is a winner or loser.
The Big Issues
In considering a specific deal, I look at the two companies involved, the products/technologies they produce, competitors, the environment in which the deal takes place, and how current and potential customers are likely to respond. This is a very long post, but only touches on these issues.
I do not spend a lot of time looking a numbers. I am aware of relative sales and share for each vendor, but have never needed hugely specific numbers to pick winners and losers. Rather, I've found that number crunching can lead to bad analysis because it loses the idea that markets are living organisms and subject to huge changes. Besides, my conclusions and those of the spreadsheet crowd are usually pretty close anyway, if arrived at differently.
Hewlett-Packard -- HP can afford the purchase and has $13 billion in the bank. The company's dark days under Carly Fiorino are behind it. CEO Mark Hurd is a smart leader with an excellent track record. He's already turned HP around, so making Palm a success should be a snap? Not hardly, but possible and within Hurd's range. But, if the deal goes sour, Hurd will still have a job.
Palm makes products that overlap with HP's iPAQ line, which have been well-received but only a moderate success. iPAQs are also based on Windows Mobile.
The arrival of Windows Phone 7 is a perfect inflection moment for HP. If Windows Mobile customers have to move to a new smartphone OS anyway, why not move iPAQ customers to webOS? With Palm's OS in its portfolio, HP will no longer be dependent on Microsoft getting smartphones right someday.
In this sense, HP was Microsoft's customer to lose--and it did. It would not surprise me to see new iPAQs running Windows Phone 7, but how many HP will actually sell remains to be seen. It might be best to make a clean break and make webOS the only smartphone line that HP offers.
Palm -- Key question: Why didn't Palm make it? It's easy to blame competition, but that was a given when the new investors dropped $325 million into the company for their turnaround attempt. The good news is that Palm largely got the products right.
On the business side, did Palm ever have enough money to compete successfully? If not--which now seems pretty clear--then HP is going to have to spend big if it wants to carve out a bigger place for itself in the smartphone market.
Palm's business management can be questioned. Execution was a problem, though it is hard to say how much was possible if things had gone really well. From outside, it is hard to tell if management screwed up or was simply attempting the impossible no matter how well plans were created an executed.
Still, Palm botched its early product launches, enabling Apple to quickly grab the spotlight, and even marketing amateurs should have seen this coming.
A question for HP: Leave both the technical management and business side in place or make changes in the business side? Overall, Palm seems able to create quality products but has been unable to sell them. Selling has become an HP strength under Hurd.
You decide what changes need to be made, probably on a sliding scale from HP really runs Palm to HP provides adult supervision, access to customers, and the money Palm needs to execute at a higher level.
There is general agreement that webOS is a good-to-great smartphone OS and Palm is able to design and manufacture good products. I will add, "that people would want if Palm had more apps, excellent enterprise support, and an excellent music store." Lacking those things, even great hardware is going to land with a thud.
Good products are not enough. Smartphones require ecosystems of applications, content, and accessories. Apple is the standard for this. Question: How well must HP/Palm, Android, or Windows Phone 7 do to compete with Apple? And which, if any, of these competitors will succeed?
If you don't believe that a big ecosystem is necessary and rewarded by customers, then you might consider to Research in Motion to be unassailable in the enterprise market.
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