Palm's fate lies in hands of others

While the smartphone maker has reportedly put itself in the shop window recently, industry watchers give their reasons why a takeover for Palm is almost inevitable, and even welcomed.
Written by Kevin Kwang, Contributor

As Palm continues its struggle to generate revenue amid falling share prices, recent reports have revealed that the company is looking to sell itself to the highest bidder.

According to an earlier ZDNet Asia report, the smartphone maker last week priced itself at US$1.1 billion to draw bids from potential buyers such as HTC, Lenovo, Nokia and Dell. Goldman Sachs and Qatalyst Partners have also been contracted to manage the takeover proceedings, the article stated.

In further developments, a key Palm executive, Michael Abbott, reportedly left the company just as it had implemented an executive retention plan.

Abbott, who was the senior vice president of the company's software business, was key to the development of its WebOS mobile operating system (OS) launched in 2009, according to a report by ZDNet Asia's sister site CNET. He was also the spokesperson who explained the inner workings of the platform to others like software developers, the article noted.

In the same report, Palm was said to have incentivized its senior executives to stay on with the company for two years. This included US$250,000 in cash for its chief financial officer and senior vice president of global operations, even as the firm braced itself for further upheavals.

Takeover a matter of time
Amid this backdrop, industry watchers have mostly agreed that a takeover is the most likely outcome for the once-heralded PDA (personal digital assistant) and smartphone pioneer.

Bryan Wang, Springboard Research's research director of connectivity and research, told ZDNet Asia in his e-mail that in the current market, "we do not believe Palm will be able to survive on its own in the long term". He added that this was due to the company's poor marketing efforts and limited capability to further develop the Palm OS and come up with new industry designs.

"Without a large [developer] base, Palm will not be able to create its own application store, which is vital for future success in the smartphone space," said Wang.

Ovum's analyst for devices and platforms, Tim Renowden, concurred. He pointed out that Palm faces a "big challenge" to survive in today's highly-competitive smartphone market dominated by a number of very powerful players.

"Palm lacks market share, its brand recognition is weak outside North America, and it is having difficulty attracting developers to its [WebOS] platform. Competing in this market takes more than just a user-friendly OS," he added in his e-mail.

Furthermore, Renowden noted that given the "intense rivalry" between Apple, Research In Motion (RIM), Nokia, Microsoft and the various manufacturers supporting Google's Android mobile OS platform, "it's not clear that consumers or developers want yet another OS [in the market]".

He added that consumers are currently interested in "applications, services and content"--areas where Palm is weak in--while its hardware is also not exciting enough to entice people away from the more established brands and platforms.

Lack of marketing focus
Giving a different perspective was Ramon Llamas, senior research analyst for mobile devices technology and trends at IDC, who declined to "speculate" on Palm's fate.

He was, however, keen to point out in his e-mail that the smartphone maker has made efforts to "remedy its situation". This includes working with mobile carriers to train the sales personnel to sell its devices, aggressively reducing prices, and ending the relationship with its advertising company Modernista, he added.

"These demonstrate that Palm is serious about its future and taking active, albeit defensive, steps to change course," said Llamas.

Delving further into Palm's marketing efforts, the IDC analyst said that while having a "well-received OS and phones" solves part of the problem, what is essentially missing is communicating the company's value to customers.

He cited the example of Palm's Pre smartphone as an example. First launched by Sprint in the U.S., there was "very minimal" advertising of the product by Sprint, and what there was rarely showed off the device or the OS experience, said Llamas.

Furthermore, the sales force was not properly trained on how to sell Palm devices, which the IDC analyst considered as a "critical" issue. These sales people could have answered questions and highlighted the abilities of these devices, he stated. Palm addressed this issue a little too late.

Likely Palm buyers
Efforts by the company to remedy the situation are likely to prove futile as the mobile device maker is being eyed for a buyover by some of the industry's more established players.

According to Ovum's Renowden, prospective buyers such as Dell, Lenovo and Hewlett-Packard (HP) may view the purchase as a strategic move. He said the abovementioned vendors are likely to be interested in Palm's assets if they want to enter the smartphone market.

Dell and HP, in particular, may also see value in building on Palm's strong brand awareness in the U.S., and may continue the brand for the short term before moving on to a "dual-brand" or "single-brand" strategy in two to three years, said Springboard's Wang.

Other candidates like HTC are said to be interested in developing their own software platform through Palm's OS, rather than rely on the Android or Windows Phone 7 OSes, Renowden noted.

Blog site Gizmodo pointed out another reason for HTC's interest: Palm's technology patents. The Taiwanese phone maker is currently embroiled in a lawsuit with Apple which alleged that the former had infringed on 20 of the Cupertino company's patents.

"It seems like the only thing that makes sense is buying Palm to snatch some of their patents to use against Apple lawsuits and to improve future phones. Exactly what HTC needs," the blog post stated.

Ultimately, Renowden thinks potential buyers have to weigh up their options carefully and have a clear idea of what they want to do with Palm after the buyout.

"The question for buyers is whether they really believe they can compete with the big platform players or whether they are better off licensing existing platforms and focusing on hardware and software customization," said Renowden.

As for Palm, the Ovum analyst thinks a buyout is not necessarily a bad thing.

"Being bought by a bigger player may well be the best thing for Palm’s technology assets," he said, "Palm's WebOS platform is well regarded and would be a prized asset for prospective buyers."

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