HP rescue 'best deal' for Palm

Adam Leach, Principal Analyst, Ovum

UK: Hewlett-Packard has acquired Palm for $1.2bn. The acquisition provides HP with the assets to make a significant push into the consumer smartphone market. Palm will benefit from HP’s manufacturing expertise, distribution channels and its financial investment.

However, to reverse Palm’s fortunes HP needs to transform Palm into a global consumer brand, build compelling content partnerships and rebuild Palm’s once vibrant third-party developer community. In short, HP must develop a managed device platform that can rival offerings from Google, Apple and Microsoft.

Building developer traction is the key to HP and Palm’s device success
The most important part of this acquisition for HP is ownership of Palm’s device software platform, WebOS, and the engineers used to develop it. HP has the opportunity to leverage the OS into a range of connected devices beyond the smartphone. WebOS is a good technology building block for HP to start building out its own managed device platform, although there is still a number of essential pieces missing which HP will need to address.

Critically HP needs to breath some life into the WebOS developer community. This will be a significant challenge as Ovum’s recent survey of mobile application developers shows, application writers show an overwhelming desire to support three or perhaps four device platforms. With at least that many already dominating the space, HP needs to demonstrate the revenue earning potential of WebOS devices to developers.

In addition HP needs to bring compelling, and possibly unique, content to Palm devices. It needs to establish the commercial partnerships with content owners but also needs to ensure that billing and settlement infrastructure are built into the WebOS platform.

Palm brand still has value in some markets but needs global relevance
Although the Palm brand is not as strong as others in the smartphone market (e.g. Apple, Nokia, Google) it is an established brand and will help HP differentiate from other computer manufacturers (e.g. Dell and Lenovo) as it seeks to become a major player However, although there is some residual brand loyalty from Palm’s glory days, HP need to transform Palm into a globally recognized and relevant brand for today if it to compete successfully in the smartphone market.

HP brings significant scale and manufacturing know-how to Palm
Although HP faces challenges in turning Palm around it does bring with it some key advantages from its existing business.

First HP brings considerable scale to the operation and its expertise in manufacturing, which will bring efficiencies to Palm’s business. Second it has considerable global distribution networks, although key will be the operator channel, which will assist in getting Palm’s products into the hands of consumers. Third it has sufficient financial strength to invest in Palm without demanding immediate profitability from the business.