The New Apple? HP's Palm Acquisition Makes It Possible

HP's planned $1.2 billion acquisition of smartphone developer Palm gives HP the technology and the app base that could make it not only a mobile device and cloud computing powerhouse, but also a formidable competitor with Apple.

Hewlett-Packard on Wednesday tore a page from Apple's business playbook with plans to use its acquisition of Palm as the centerpiece of a mobile strategy across a full range of mobile devices including smartphones, slate or tablet PCs, and netbooks.

HP did not mention specific potential competitors of its future mobile products based on Palm technology, including the Palm webOS operating system.

However, Todd Bradley, executive vice president of HP's Personal Systems Group, said at a conference call about the acquisition that the Palm webOS will help HP drive its mobile users' online experience.

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"Today's announcement is very much about how HP will provide our customers with a great experience as they increasingly live their lives online from work, entertainment, and everything in between," Bradley said.

In addition to smartphone technology and webOS, Palm brings to HP a large developer base, over 2,000 apps, a platform to deliver cloud-based services, and the opportunity to drive more branded business, Bradley said.

"We anticipate that, with the webOS, we'll be able to aggressively deploy an integrated platform that will allow HP to own the entire customer experience, to effectively grow and nurture the developer community, and to provide a rich, valued experience to our customers," he said.

Such a platform makes HP a strong potential competitor to Apple, according to analyst firm iSuppli.

Palm has made only limited headway in the smartphone market so far, with a market share of 1.5 percent of units shipped in the fourth quarter of 2009, wrote Tina Teng, senior analyst for wireless communications at El Segundo, Calif.-based iSuppli, in an analyst brief. That put Palm in tenth place overall in the smartphone market.

However, the company's Pre smartphone offers significant advantages compared to Apple's benchmark iPhone, Teng wrote.

Next: Palm webOS Tops Mac OS X

"Palm's webOS appears to be superior to the Mac OS X used in the iPhone in the crucial area of multitasking capabilities. This is a key point of differentiation, combined with the product's multi-touch display," she wrote.

Palm also gives HP a chance to revamp its own Windows Mobile-based smartphone line, which has been "dying a rapid death," wrote Jack Gold, founder and principal analyst at Northborough, Mass.-based analyst firm J.Gold Associates, in an analyst brief.

With Palm, HP gets a substantial IP and patent base it can use as a defensive threat against competitors, which Gold said primarily consists of Apple, but also includes HTC and Google.

"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 even eventually result in license revenues to HP form (sic) some of its competitors," Gold wrote.

Palm's webOS could easily be used with tablets and other devices to compete with the likes of Google Android or Apple's iPad, Gold wrote.

"This is a key growth area for HP. It has already shown a Windows based tablet. And since tablets are primarily front ends to the Internet, it allows HP to deploy many cloud-based services from which it can generate revenue, including those in an app store, streamed services, etc." he wrote.

Analysts on the HP conference call did not ask Bradley about competing with Apple or other mobile device vendors.

However, when asked why HP wants to acquire its own operating environment instead of partnering with Google and that company's Android platform, Bradley said that the market for smartphones, slates, and netbooks is still in the very early stages.

"We think that the developer communities will very aggressively, as we invest and provide support, begin to develop that suite of applications for webOS that will make it even more compelling than it is today," he said. "At the same time, we believe in choice ... We will continue to be a strategic partner with Microsoft."

The potential for development of webOS for tablet PCs is very high, with the business potential especially strong for HP's channel partners, Bradley said.

"Having just finished our partner conference, (we're seeing) enormous interest on behalf of channel partners with specific vertical deployments in things like health care and education," he said. "So I think you'll see these products deployed in both segments, consumer and commercial."

Solution providers are mixed in their reaction to HP's acquisition of Palm.

John Murphy, executive vice president of Advanced Systems Group, a Denver-based solution provider and HP partner, said that Palm is just another piece in a very powerful HP supply chain.

"Palm has good technology but poor profitability," Murphy said. "And HP will eliminate the poor profitability part."

Making webOS a part of the HP product line is a good move, Murphy said. "Mobile is a part of any IT business today," he said. "It's a part of security. It's a part of the cloud."

Gia McNutt, president and CEO of Special Order Systems, a Campbell, Calif.-based solution provider, found the acquisition to be a little strange.

"They've [HP] bought a lot of questionable companies," McNutt said. "Palm is a very closed, proprietary architecture. If they'd bought, I don't know, RIM, maybe people would have gasped."

McNutt suggested the Palm play might have something to do with HP wanting to get into mobile messaging, or acquire a fully formed smartphone maker to sharpen its strategy in a market many observers say that HP, despite being the world's largest IT company, has missed out on.

"Maybe they know something about Palm that we don't," she said.

Chad Berndtson contributed to this story.