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HP's Palm Move – Risky or Not?

Many questions loom over HP's acquisition of Palm

In a stunning, largely unforeseen move, HP announced that it has shelled out $ 5.70 per share or roughly $1.2 billion to acquire Palm. Arguably a very aggressive and risky move considering that the fact that Palm's market share is about 5% in the U.S. and less than 2% globally. Symbian (Nokia) commands the largest market share in Smartphone environments today while Palm's WebOS lags way behind without any unique position in the market. Looking at HP's prior acquisitions and how they were rebranded almost immediately after purchase -- EDS became HP Enterprise Services and 3Com became HP Networking, Palm would probably be christened HP Mobility or something similar. The product names are still expected to be Treo, Pre and Pixi. Historically acquired product lines integrated into HP tend to benefit from HP's strengths-lower cost model; improvements in hardware performance, efficient supply chain and distribution. True HP does not sell handsets (yet) to the carriers, but they do sell associated hardware, software and services. HP being the world's largest technology company by revenue, it is a considerable force to reckon with in PC, server, service and printer markets. But without a Smartphone offering, the company would have been at risk of being left behind in the emerging and highly profitable mobile market. Other PC makers like Dell, Lenovo and Acer are also experimenting with the Smartphone market.

This is not the first time HP has acquired a mobile company. Few years ago, it got its hands on iPaq, PocketPC lines from the Compaq. Even so the mobile side of HP did not make much productive progress. Some believe that the Palm acquisition would spearhead HP to compete aggressively in the Smartphone arena. With Palm's readymade platform WebOS which sports some advanced features, HP has gotten itself a raised platform to jump from and hopefully not too far behind Google, Microsoft or Symbian (Nokia). They don't need to develop a mobile platform from scratch nor pay for licenses from other OS providers for its mobile products while gaining access to Palm's plethora of patents. Palm's WebOS would also make a good fit for web-centric HP Tablets and challenge Apple in a way very similar to Android does to the iPhone. WebOS would be leveraging work that many developers have already done to create the already existing Web applications making it easier to eliminate effort towards another proprietary platform. There is a lot of scope for HP Cloud to play into it as well.

On the other hand, there are many skeptics who are adamant that the combination of computer/phone will either not happen or remain unprofitable. There are certainly any numbers of issues to iron out and many questions that loom. Like...

  • How will HP WebOS differentiate itself from iPhone, Android, Blackberry, WP7 and Symbian (Nokia)?
  • Will HP succeed in bringing the hardware quality that the Palm Pre & Pixi lacked?
  • Can HP hold on to the WebOS developers or attract new ones?
  • Will this be integrated into HP Tablet?
  • Can HP fix the hardware and carrier issues that have plagued Palm since their re-invention, and can they do it fast enough for it to matter?

What's also interesting to note about this acquisition is that Palm needed to be bought and it was a well known secret that it couldn't have survived on its own. Though no one saw it coming, just as Apple has leveraged their iPhone OS for the iPad, HP could very well leverage the Palm WebOS for its tablet product lines and eventually take on Apple sooner than later.