Will HP Buy Struggling Palm? - InformationWeek
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3/2/2010
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Bob Evans
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Will HP Buy Struggling Palm?

Hewlett-Packard does sell smartphones-just not very many of them, and the numbers are shrinking: $25 million in handheld sales for the quarter ended Jan. 31 versus $57 million in the year-earlier quarter. So now that Palm's stumbling fortunes raise doubts about its ability to survive on its own, would it make sense for HP to jumpstart its smartphone business by buying Palm?

Hewlett-Packard does sell smartphones-just not very many of them, and the numbers are shrinking: $25 million in handheld sales for the quarter ended Jan. 31 versus $57 million in the year-earlier quarter. So now that Palm's stumbling fortunes raise doubts about its ability to survive on its own, would it make sense for HP to jumpstart its smartphone business by buying Palm?"Last week, investors saw about half a billion dollars in the market value of smartphone developer Palm Inc. disappear. Poof. Gone. Bye-bye," wrote MarketWatch.com's Therese Poletti this morning.

And since that sell-off was precipitated by disappointing sales results from a bet-the-company product strategy, Palm's got some very big decisions to make, Poletti wrote:

For those counting on a big Silicon Valley turnaround under Palm's new management team, a big cash infusion in late 2008, and a well-received product lineup that started with the Pre-launched, fittingly on the anniversary of D-Day-hopes may be dashed.

"I think there is no second chance," said Trip Chowdhry, a Global Equities Research analyst. "They had a golden opportunity. . . . They just surrendered it."

So perhaps HP could be the savior. As Poletti says, smartphones represent a massive hole in HP's otherwise vast product line, which spans both the enterprise and consumer markets that Palm addresses.

With more and more companies realizing that their enterprise applications, data, and collaboration must fully embrace the needs of both a mobile workforce and increasingly demanding customers, a significant smartphone portfolio would seem to be essential for HP. As Poletti says:

But H-P is another story. While its PC business saw units of notebooks and desktop PCs grow in the double-digits last quarter, its handheld business fell. It sells expensive smartphones running Microsoft Corp.'s Windows mobile software under the old iPAQ brand it purchased in its acquisition of Compaq Computer.

The numbers are telling. Handheld sales in H-P's most recent quarter, ended January 31, fell to an abysmal $25 million, down sharply from $57 million a year ago.

Surely numbers-driven Chief Executive Mark Hurd is looking for ways for H-P to take advantage of the boom in smartphones. Buying Palm could be a way for H-P to get into the market for lower cost devices. It might have to abandon Windows, or offer two families of devices. H-P has often juggled competing product lines, diverse chip architectures and operating systems.

Hurd knows better than most that Palm's not a panacea, and that in spite of the hammering its market cap has taken in the past week, it wouldn't be cheap, either. But balanced against the need for his company to shift rapidly from bystander to contender in the smartphone space, Hurd might conclude that Palm, imperfect though it may be, would make an ideal acquisition for HP.

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