Lenovo has reportedly emerged as the leading candidate to buy Palm after HTC bowed out, but would the PC maker really pull the trigger? Logic dictates that Lenovo is an unlikely savior.
Reuters is reporting that Lenovo is in the running for Palm, which is up for sale as it tries to avoid a death spiral. Lenovo emerged as a likely buyer after HTC bowed out of the running. Reuters cites investment bankers who note that Lenovo "is looking into" buying Palm.
But here's the problem. Anyone around the tech industry more than an hour or two realizes investment bankers will tell you anything. After all, these bankers are trying to sell Palm. Lenovo would allegedly pay $1.3 billion or so for Palm.
Now it's time for a reality check. The Reuters story notes that Lenovo has been a buyer of faded brands before and cites the company's purchase of IBM's PC business in 2005 and an attempt to buy Packard Bell. The entire Palm theory seems to rest on the concept that Lenovo wants to be U.S. player and will spend money to get there. But what does Palm bring to the table here? Lenovo's purchase of IBM's PC business made strategic sense. IBM's PC business wasn't perfect, but let's just say the ThinkPad and thousands of corporate accounts are in a league much higher than the Palm brand.
Simply put, the Lenovo bid may still happen, but doesn't exactly add up. Here's why:
Yes, Lenovo is getting back into the smartphone market and lacks a presence in the U.S., but it doesn't need Palm. If Palm had more market share perhaps a deal would make sense. All Lenovo would get from Palm is an operating system and intellectual property. Palm's hardware prowess and ability to crank out new designs are questionable (we're still on the Pre aren't we?). Lenovo has the the manufacturing heft and designs that are better than Palm's setup now.
Lenovo's smartphone strategy can begin and end in China. Lenovo already has an Android-powered smartphone, the Lephone, ready to hit the market in China. China is a massive market and Lenovo can be a hit at home and do just fine. Lenovo can take its designs for the China market, run them through its North Carolina hub and enter the U.S. if it wants to in the future.
Why add a distraction when business is going well? After weathering a downturn, Lenovo is on a roll just as corporate IT spending is about to pick up. Why would you add a distraction to that mix? IDC data indicates that Lenovo was the fastest growing PC firm in the first quarter with 8.8 percent global market share.
Macquarie analyst Patrick Yau adds:
The corporate boost should still be the key catalyst for calendar 2010. With most corporate PCs still on Windows XP vintage 2001, a boost from PC renewals in the corporate segment would be an important driver for the PC industry. With Lenovo still more exposed to the corporate market from the perspective of sales mix, we believe it stands to be one of the beneficiaries as this scenario progresses, notwithstanding its recent efforts in boosting its exposure toward the consumer segment.
In other words, it's time for Lenovo to harvest. It's hard to make the case that Lenovo should spend half of its $2.4 billion in cash on Palm.