What are the financial basics of this deal?
HP will pay cash for Palm shares, offering US$5.70 per share. The current estimate of the worth of the deal is $1.2 billion. Palm investors (and the usual regulatory agencies) have to agree, but to use Palm Chairman Jon Rubinstein’s word, there’s little doubt that the current investors will be “thrilled” to take the money. The deal is expected to close the end of HP’s third quarter, so probably in July. Palm will operate as a separate business unit with, apparently, many of the current management and engineering teams staying on with HP.
Why is HP doing this Palm deal?
HP executives say this is a “strategic” acquisition of an important, cutting-edge mobile operating system, Palm’s webOS, and the engineering and management talent to continue to make it successful. They say the smartphone market is still in its infancy with a lot of growth ahead of it. And, even more, that webOS will serve as the foundation of a whole range of HP-branded connected mobile devices and accompanying cloud services.
What’s the downside?
HP has decided to become mobile platform vendor, responsible for both innovative hardware design as well as the continued advancement of the OS. That puts it in direct competition with Microsoft (Windows Phone 7, which will begin appearing on handsets late this year), the Android community, which is pumping out a range of handsets and devices with this open OS as well as a lot of applications, and of course Apple’s very successful iPhone and iPhone OS. That’s a formidable challenge, but HP clearly thinks the market can pay off for them.
But Palm was failing, wasn’t it?
It was not selling the number of Palm Pre and Palm Pixi phones that it needed to, certainly. And the prospects, as Palm itself admitted, were not good. HP brings some strengths that Palm didn’t have. It can just do more, and do it all on a greater scale.
HP is a global company, a fact that’s important for reasons as varied as squeezing costs out of Palm’s supply chain, and expanding webOS device sales and marketing; it has solid infrastructure relationships with eight major carriers worldwide and HP executives said they plan on leveraging those for webOS devices in the future.
Without going into detail, HP executives today said HP will be expanding webOS and mobile device R&D, beyond Palm’s current $180 million per year (as estimated by one investment research firm). It will also increase spending on sales and marketing worldwide.
Why buy and maintain their own OS instead of using something like Android?
According to HP’s Todd Bradley, Executive VP of the Personal Systems Group, HP believes that webOS will be the basis of several classes of mobile devices -- smartphones, touch tablets and potentially netbooks — all of which are generating big consumer demand. HP thinks it can offer a unique “HP experience” across all of them, tied into emerging cloud-based services.
Where will the Palm platform compete in such an aggressive market?
Bradley wouldn’t be specific at this time. But he did say it will continue in the consumer smartphone market and HP will leverage its own retail and commercial channels and partners to broaden the distribution of these devices. Another key area, he said, is the “enormous interest” expressed by channel partners in specific commercial verticals.
Are the Palm staff, from managers to engineers “locked-in?”
HP didn’t use that term, but they did say that an “extensive [personnel] retention program” was part of the deal. We’ll have to see if HP can keep them happy enough to stick around and compete wholeheartedly.