Analysis: Hp Buys Palm. Déjà Vu!

HP announced today that it is buying Palm for $1.2 billion. This is great news for Palm, who has been searching for a “white knight” to help it out of a severe sales decline. It has been rumored that many companies were potentially looking at acquiring Palm, including Lenovo, HTC, ZTE, Huawei, etc. But HP was a surprise suitor. Palm stockholders get $5.70 for each share of stock in a cash deal. This is easy for HP as it represents only about 1% of yearly revenues. HP could have waited a few months and likely paid less, given Palm’s shrinking installed base and sales. But likely there were others courting Palm and so HP had to react now or lose the acquisition.

money

So why would HP want to buy Palm? There are a number of reasons.

• The key management of HP’s Personal Systems Group is composed of nearly all the execs previously running Palm, including HP’s Todd Bradley. So the business and operations of Palm is well understood.

• HP’s Windows Mobile phone business is dying a rapid death and HP would have had to totally revamp its product line in order to stay in the smartphone business. It could have designed new devices with Android or Windows Phone 7, either of which would have taken time and would be expensive. Palm brings HP a modern and competitive platform that is already designed, implemented, and in production. This saves HP many R&D dollars as well as dramatically accelerates time to market.

• HP can leverage its production capabilities to get large volumes of product into the market at low cost. Palm was not able to quickly reduce its costs and profitably compete in all areas of the market.

• HP gets a substantial IP and patent base it can use as a defensive threat against the competition (especially Apple, but potentially HTC and Google as well). This is not a trivial issue as many legal battles lie ahead in the smartphone and mobile/portable device marketplace. A strong IP portfolio that is defensible is important. Indeed, the IP may...