HP's WebOS conundrum: Sell the IP or try licensing?

HP's WebOS may live on---via an interested buyer in it for the patents or under a licensing scheme.
Written by Larry Dignan, Contributor

The technology industry is clearly patent happy and there's a bubble in intellectual property valuations related to anything wireless. Is there a chance that HP could derive some value for its Palm and WebOS related patents?

HP can only hope, but the chances look iffy. HP CEO Leo Apotheker on a conference call said that the company is looking at various options for WebOS. Those options could range from a sale to licensing. What to do with WebOS is just one issue facing HP as it attempts to reinvent itself.

Here's a look at the options.

1. An outright WebOS intellectual property sale

A scan of HP's annual reports filed with the Securities and Exchange Commission reveals the company had 37,000 patents at the end of its last fiscal year. The fiscal year before HP had 33,000 patents.

HP's Palm acquisition represents some of the change in the patent tally. However, HP also had other acquisitions that closed, notably 3Com.

In the best case, HP's WebOS unit has 4,000 patents. The reality is less than that sum. Breakingviews put Palm patents at 1,600 or so.

Given the patent price benchmarks set by Google's $12.5 billion purchase of Motorola Mobility and the Nortel $4.5 billion auction of 6,000 patents, it's possible that the unit formerly known as Palm may fetch a sum to offset some of HP's losses.

When HP announced the Palm acquisition in April 2010, a "valuable IP portfolio" was cited as one of the reasons. HP is obviously willing to test how valuable these Palm patents are.

When HP bought Palm it paid about $750,000 per patent, according to BreakingViews. That sum is in line with the going rate today. Google paid $550,000 per patent for Motorola Mobility.

Patent portfolios are tricky to evaluate, but Palm did create the personal digital assistant and had a run as being a smartphone leader. That history may indicate that Palm had some foundational patents that could recoup some of HP's woeful investment.

2. The license WebOS possibility

Apotheker said that the WebOS could be a licensing revenue stream at some point. Here's what Apotheker said on a conference call:

The software has been received very well. It is very elegantly designed. Developers like it. Users like it and we will be looking at all of the options from our own devices, the third-party devices, other hardware manufacturers to other manufacturers to other people who need this kind of software and we will be looking at all possible business models from licensing to any other possibility in order to evaluate how we can best extract value out of WebOS.

How realistic is Apotheker's licensing concept for WebOS? Not very. The math doesn't quite work. HP lost $332 million on corporate investments. That loss basically equates to the Palm unit.

But if HP were to pursue a licensing model it would have to get $5 per device and sell more than 60 million units to break even at the cash burn.

The only way HP could make a WebOS licensing model work would be to convince Samsung and HTC to defect from the Android army. Even with Google's purchase of Motorola Mobility the chances of that outcome are slim.

And the winning strategy is: HP should dump the WebOS business in a patent auction and focus its efforts elsewhere.

Also: HP’s Apotheker recounts TouchPad disaster in post mortem

HP punts on WebOS, discontinues TouchPad, cuts outlook

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