HP makes its mobile move; Saves Palm from collapse; Will developers stick?

HP makes its mobile move; Saves Palm from collapse; Will developers stick?

Summary: Hewlett-Packard has stepped in as a surprise buyer for Palm. HP will buy Palm and its webOS operating system for $1.2 billion, or $5.70 a share. The deal saves Palm, which said its business was unraveling quickly.

SHARE:

Updated: Hewlett-Packard has stepped in as a surprise buyer for Palm. HP will buy Palm and its webOS operating system for $1.2 billion, or $5.70 a share.

With the deal HP becomes a smartphone player because it will acquire an operating system, intellectual property and handset designs. It's likely that HP CEO Mark Hurd will give Palm some manufacturing discipline and scale.

The deal has been approved by both boards of directors (statement).

Palm put itself up for sale after struggled to move inventory at Verizon Wireless. The company had innovative software, but failed to keep up with new smartphone designs. At the $1.2 billion price, Palm's primary investors---Elevation Partners---get out of the company roughly in tact. Meanwhile, Palm's business was just getting worse. The company projected fourth quarter revenue between $90 million and $100 million. Palm said in an SEC filing:

Revenues for the fourth fiscal quarter are being impacted by slow sales of the company’s products, which has resulted in low order volumes from carriers.

Wall Street estimates, which have come down dramatically, were projecting Palm revenue of $164 million for the fourth quarter. Simply put, HP just saved Palm from near certain doom.

You could argue that HP overpaid given the rate Palm's sales were tanking, but the deal revolves around the future of the WebOS and what HP can do with it--think Slate. According to Stifel Nicolaus, the WebOS was worth $800 million to $1 billion for a highly motivated buyer. For HP, the Palm deal means that Hurd has another part of the company's IT stack to fill out. HP has basically been a no-show in the smartphone market---aside from the iPaq (right)---but with Lenovo rumored to be a bidder for Palm and Dell aggressively moving into smartphones, the company had to make a move.

In a conference call to discuss the deal this afternoon, Executive VP Todd Bradley repeatedly referenced "connected" devices and the strengths on both side. HP isn't sharing any product rollout plans until they get closer to the closing of the deal, which is expected in the third quarter, pending regulatory approval.

However, he suggested that one of the first moves would be to use HP's retail and commercial channels to broaden the reach for distribution of Palm's consumer smartphones. As for expansion into tablet or slate products, Bradley said those are new markets that have potential for adoption by both consumers and commercial verticals, such as health care and education.

Asked why HP didn't just jump on to the Android bandwagon, Bradley said that the product lines - whether smartphones, tablets or netbooks - were still in the early stage market and that HP will be able to attract and build a developer market that will make WebOS more compelling and more competitive.

It also came as no surprise that HP - as a Silicon Valley pioneer built on the spirit of innovation - might want to maintain control over the path of a mobile OS for better integration with other products. Bradley mentioned that the both companies are Silicon Valley-based companies with "a passion for innovation."

And while no one asked the question directly, Bradley also noted that Microsoft will remain a strategic partner of HP, and said it is a "huge piece of our business today and will continue to be so."

Also: HP Slate with webOS: The potential iPad rival from HP's acquisition of Palm

In a statement, HP outlined its strategy as the following:

  • Take Palm's WebOS;
  • Use HP's scale and financial heft to bulk Palm up;
  • Leverage HP's channel and enterprise connections to make Palm a player;
  • And create a mobile ecosystem.

Add it up and the HP purchase of Palm may be enough to keep developers---a primary factor in smartphone success---in the fold.

Palm CEO Jon Rubinstein is expected to remain at the company.

There are multiple threads to ponder in this deal. Among them:

  • With Palm, HP can become a viable threat to Research in Motion and Apple. On the Apple front, Palm has a nice operating system that was built to compete with the iPhone. However, the ecosystem for Palm just wasn't there. HP could change that equation somewhat, but it's unclear whether it'll pan out from a consumer perspective. More likely, HP will make Palm an enterprise play and look to threaten RIM with mobility. HP can make Palm devices a part of the IT stack Hurd is pushing.
  • Can HP keep developers in the fold? If you're a developer looking at this deal you can breathe a little easier because Palm won't disappear tomorrow. That fact, however, doesn't change Palm's market share and growth prospects. HP will have to turbo charge growth for developers to remain interested and double down on the WebOS.
  • The tablet connection. HP has been making a lot of noise about its Slate, an iPad rival. It's unclear whether Windows 7 will be lightweight enough for a smallish netbook replacement. Palm's WebOS could show up on tablets just like Android and the iPhone OS. Andrew Nusca took the liberty of mocking this one up.
  • HP's smartphone strategy emerges. Will HP be able to keep up with the cool smartphone kids like HTC and Apple on the design front. Palm designs haven't been able to keep up and HP is an unknown entity.
  • The emergence of PC vendors as smartphone dealers. HP, Lenovo and Dell are all plotting smartphones. The convergence of the PC and smartphone and tablets could accelerate. Do these PC brands translate to smartphones?
  • Will HP play with Microsoft's Windows Phone 7? HP counts Microsoft as a long-time partner. Now it owns its own operating system the relationship could be strained.

Related:

Topics: Mobility, Hardware, Hewlett-Packard, Smartphones

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

66 comments
Log in or register to join the discussion
  • Palm & HP Silence Naysayers

    As could have been seen in the April 19th entry
    here entitled "What if Palm doesn't find a
    buyer?" there were many naysayers predicting
    doom and more doom for Palm.

    One "expert" source said:
    "Although we believe Palm being acquired is
    unlikely, we expect that any possible
    acquisition of the company would likely be
    defensive or for its IP portfolio, as opposed to
    a strategic buyer."

    I for one am glad they were wrong and glad also
    that HP is acquiring (they have the corporate
    largess, if you will, to handle parallel
    brands). There is great merit in Rubinstein's
    resolve and this acquisition attests to his
    leadership in tough times (such an outcome,
    contrary to what this entry title suggests,
    cannot be due only to HP wanting to be Jesus-
    like). I wish him and Palm all the best and look
    forward to replacing my Centro with something
    running WebOS.

    (And no, apart from owning a Centro, I'm in no
    way affiliated with Palm Inc.)
    KerryArthur
  • WebOS is as good as dead

    I can't think of a surer way to kill off WebOS than have
    HP buy it. HP can't write a lick of decent software to
    save its life and HP sure as heck doesn't "get" the app
    craze.

    WebOS is about to go down in a blaze of folly.
    ericesque
    • RTFA

      the programmers at Palm are staying!!!!
      htotten
      • Ummm no, they're not

        A portion of them will be enticed to stay for 6-12 months by retention bonuses. The rest will be looking else where asap. For the rest, once the retention bonus period is up they'll be gone to. Enterprenarial innovators like start up atmospheres, not stodgy corporations. My guess is webos will soon be over in india on life support. It's the Hurd way.

        Regardless they will not be able to muster any 3rd party app support. With MS, Nokia, Apple, and android there's enough already. Sorry webos and RIM. Same with ipad, windows, and android/chrome. No need for a webos slate.

        Be lucky if it makes it 3 years before they use it as a total write off...
        Johnny Vegas
        • Reduce HURD's bonus by $1.2 billion

          This crazy folly of spending $1.2 bill for something that's going extinct should be recooped by HP reducing Hurd's golden parachute by this amount.
          BoulderDave
      • congrats!

        you learned what RTFA stands for this week. By
        next week, if we're lucky, you'll stop using it
        like everyone else.

        Unfortunately, htotten, despite your
        commendable efforts, reading the article didn't
        translate into comprehension. The article
        DOESN'T say the programmers are staying. It
        simply said their positions are not being
        terminated immediately. This still leaves a
        major component to the equation-- whether the
        programmers will decide to stay on under HP.

        If they do stick around it will be just long
        enough to figure out how HP works. Any of the
        developers with a shred of talent will almost
        certainly begin searching for another employer
        in the first year.
        ericesque
    • It'll die without help

      It's as good as dead without any help. While I
      certainly didn't want to see it come to this -
      frankly, Palm has been way too slow to get
      their stuff to market.

      Maybe HP can help Palm get more hardware to
      market, and maybe Palm can help HP create
      software.

      As long as they continue to play their
      strengths, they should do fine.
      CobraA1
  • WebOS has little or no value.

    If Palm had understood that they would not be going under.
    No_Ax_to_Grind
    • C'mon Axe

      I guess Symbol has no value either....HP is going
      to use WebOS in their Medical Equipment
      devices...vertical...niche...verrrryyyyy
      profitable.....
      htotten
    • I respectfully disagree.

      I respect your opinion, Ax, but I must disagree. I have a Palm Pre. The software is dynamite, the hardware meh mainly because of construction issues. I think HP acquiring Palm means that they will stay alive long enough to have hardware designs that match the ability of the software to rock hard. Of course, the other reason they acquired Palm is to put WebOS on a tablet, where it will absolutely RULE. When testing out the iPad in an Apple store, I kept having one thought come up again and again; 'this tablet would be awesome with WebOS on it instead of this jankety iPhone OS'. It's a can't-miss proposition.
      heres_johnny
  • WebOS is why HP jumped into the fray!

    Apparently you have never USED WebOS. It's dynamite.
    Every bit as nimble and well designed as iPhone OS (and
    more because it already has Multitasking). A better
    notification system and the flexibility to work with the
    hacker community (not against them). WebOS is the top
    reason for *any* company to acquire Palm.
    Olderdan
    • Agreed!

      WebOS is the key. Can you imagine the medical
      equipment using WebOS instead of embedded
      "whatever"?
      htotten
      • WebOS in Medical devices

        Well good luck with that one, maybe in 10 years. To record, or use data
        with medical devices, the OS would have to be certified by the FDA.
        minardi
    • Web OS and the Slate would actually work.

      Dump the crippled OS it has now and put a real touch based OS on the
      Slate and you could have a serious winner.
      Bruizer
  • RE: HP makes its mobile move; Saves Palm; Will developers stick?

    I think it was a good move. The good software folk of Palm will stay. They now have a giant behind them to give the money needed to make it happen. If we don't try to make them an Apple or Blackberry slayer, we can see them as a good choice--especially if they take the enterprise approach.
    lmerklin
  • Bad move

    HP basically paid 1.2 billion for a mobile OS.

    They could have tailored android for free, or wait for MS to finish the R&D on Win Mobile 7.

    So they really paid 1.2 billion for what, the Palm Pre hardware intellectual property?!?

    The Pre is an OK hardware design, but come on...
    croberts
    • RE:Bad Move - you're wrong

      Obviously you have not used WebOS judging by your comments. The only advantage that Android and Apples mobile OS have is the amount of applications available for their devices, that is all. WebOS has more functionality out of the box with it's first version than Apple or Andorid does with their latest versions. From true multitasking, to unified messaging, to Exchange support, to a much better browser. I could go on but I will stop here. Apples hardware design is superior, I will give you that, as I do like the larger screen, but I do like the physical keyboard on the pre and pixi. With Android devices you do not know what version of the OS you will get, and they are not all upgradeable to the most current version, with Palms devices they all run the same OS, are OS upgradeable (automatically BTW), are not tied to propreitary software for activation and backup (itunes anyone), are remote wipe capapble (which iphone just got), phone is backed up daily (again automatically so you can restore your phone if you replace it or it is lost or stolen, again iphone just got that capability). HP invested in the OS, not the hardware, as the OS will run on slates, netbooks and other devices with embedded OS's.
      villanim
      • I have never used WebOS but

        I currently have a Motorola Droid.

        It is currently running a version 2.6.29 Linux kernel, so it should be able to do true multitasking. I haven't really tried, though; it is a phone not a desktop. When I got my original Droid about a month ago, the Android version was 2.0.<something>; it has been updated at least 3 times and is now on 2.1<update 1>, according to the system info widget. It tells me when an update is available and I grant permission to proceed with the installation. It is painless.

        I have already had to replace my original Droid; after laundering the phone I was unable to reload the OS (the hardware said it was ready) the Verizon store couldn't, either. The new one automatically populated my contacts and applications. I have no complaints about the phone, Verizon or Asurion, the insurance carrier that replaced my still new phone without hesitation.

        I don't see all the advantages you say WebOS would provide; perhaps I would if I switched. As I am happy with my Droid, switching is not in the cards right now.

        I hope HP and Palm do well together but I am not switching now.
        fmcgowan
      • Oh dear...

        What you don't seem to understand, is that what you prefer is utterly
        irrelevant. All your errors apart, market results speak for themselves.
        Graham Ellison
        • irrelevant

          What is irrelevant is your comment. Individual preference make up that market!

          Story--
          I hope it does well. I like HP devices. I have no smart phone, tablet/pad or any other device like that, so I cannot speak from experience.
          I have never used Linux in any flavor, did use Unix at AT&T (old company not new company--back when SBC was a subsidiary not parent)
          I may never get some kind of device someday not likely soon, may wait until some of the dust settles. I use my phone as just that--a phone!
          Another thing--people need to work on their spelling and word usage. Intact is one word, as two words it has a totally different meaning. When we neglect spelling, it makes your words harder to understand. If you find an error in my post it is due to typing errors, not misspelling.
          dhays