In purchasing Palm, HP intends to build and sell not only a new collection of phones based on Palm's critically-acclaimed webOS, but a line of webOS tablets as well.
On Wednesday, the two companies announced that HP has agreed to acquire Palm for roughly $1.2bn - $5.70 per share of Palm common stock - and according to Todd Bradley, executive vice president in HP's personal systems group, the PC giant will use Palm's engineers, webOS mobile operating system, and other intellectual property to fashion all sorts of mobile devices for use at work and at play.
"Today's announcement is very much about how HP will provide our customers will a great experience as they increasingly live their lives online for work, entertainment, and everything in between," Bradley said during a conference call with financial analysts and stockholders. "In acquiring Palm, HP dramatically accelerates the assets needed to deliver compelling, connected mobile experiences."
Bradley and crew believe the mobile market provides a "significant opportunity" for profit growth. HP's internal research indicates that the $100 billion smartphone market is growing by about 20 per cent a year, and the company is eying tablets as well. "We see further opportunities beyond smartphones into additional connected mobile form factors. With webOS, we'll be able to aggressively deploy an integrated platform that will allow HP to own the entire customer experience, effectively nurture and grow the developer community, and provide a rich and valuable experience for our customers."
Bradley went on to say that Palm owns certain "cloud-based assets" and other IP that will aid this cause. That's a nod to Palm Services, web services that send over-the-air updates to webOS phones, provide backup for data and applications, and remotely erase phones when they're reported stolen.
HP already sells iPaq smartphones based on Microsoft Windows Mobile OS, and it's developing a tablet around Microsoft's fledgling Windows 7 desktop. Details on this HP Slate were leaked, well, right around the time Steve Jobs unveiled the Apple iPad.
HP intends to continue selling Windows-based devices. "We believe in choice," Bradley said. But it sees a brighter future in offering Windows phones and tablets alongside systems based on webOS, which debuted earlier this year on the Palm Pre. "With Palm, HP acquires a strong operating system to deliver a unique customer experience," Bradley said.
Bradley declined to say when he expects HP's webOS devices to reach the market. The company won't discuss roadmaps until after the deal closes. It's expected to close in HP's fiscal third quarter, which ends on July 31. But Bradley did say that HP will build webOS tablets and phones for both work and home use.
The webOS has been hailed by the critics, but sales of the Pre and the Palm Pixi, its sister phone, have been poor. The company is currently operating at a loss. Research outfit iSuppli says that Palm was the world's tenth largest smartphone brand in the fourth quarter of 2009, accounting for 1.5 per cent of all units shipped. That share has remained flat over the past year, despite the debut of the Pre last summer.
Bradley's pitch is that Palm simply needs a company like HP behind it. Around 2,000 applications are available for webOS, and Bradley sees this number growing once HP rides to the rescue. "With HP's additional investments and commitment to [the developer] ecosystem, we will realize the full potential of this integrated solution."
Asked why HP didn't just switch from Windows to Android - Google's open source mobile OS, which already boasts a much larger developer community than webOS - Bradley just repeated the bit about HP dollars growing the webOS community. "We believe that with Palm, there's a unique opportunity to create HP experience across many products," he said.
Bradley also believes HP can get Palm over the hump by exploiting HP's existing relationships with wireless carriers. He said that HP provides infrastructure for eight of the ten top carriers in the world. "As we built our execution plans, we focused on leveraging several large carriers instead of large numbers of small carriers. We think that leverage will provide a very significant growth platform for those products."
It's a nice theory. But we question whether it actually makes sense. Just because you're selling servers and other data center kit to a company doesn't meant they're going to give the inside track on getting smartphones and tablets onto its wireless network. Certainly, webOS puts Windows Mobile to shame, but those carrier relationships haven't exactly turned the iPaq into an iPhone beater.
And the investment-brings-developers bit? We don't buy that either. What brings developers is the number of people using a device - or at least the number of people who will potentially use it. At this point, we still say the potential is rather small. ®