HP Redirects Its Mobile Device Business Strategy with the Acquisition

question 91

Short Answer

HP Redirects Its Mobile Device Business Strategy with the Acquisition of Palm

With global PC market growth slowing, Hewlett-Packard (HP), number one in PC sales worldwide, sought to redirect its business strategy for mobile devices. Historically, the firm has relied on such partners as Microsoft to provide the operating systems for its mobile phones and tablet computer products. However, the strategy seems to have contributed to the firm’s declining smartphone sales by limiting its ability to differentiate its products and by delaying new mobile product introductions.

HP has been selling a smartphone version of its iPaq handheld device since 2007, although few consumers even knew HP made such devices, since its products were aimed at business people. Sales of iPaq products fell to $172 million in 2009 from $531 million in 2007 and to less than $100 million (excluding sales of Palm products) in 2010.

With smartphone sales expected to exceed laptop sales in 2012, according to industry consultant IDC, HP felt compelled to move aggressively into the market for handheld mobile devices. The major challenge facing HP is to overcome the substantial lead that Apple, Google, and Research-In-Motion (RIM) have in the smartphone market.

To implement the new business strategy, HP acquired Palm in mid-2010 in a deal valued at $1.4 billion (including warrants and convertible preferred stock). HP acquired Palm at a time when its smartphone sales were sliding, with Palm’s share of the U.S. market dropping below 5 percent in 2010. Palm was slow to recognize the importance of applications (apps) designed specifically for smartphones in driving sales. Palm has several hundred apps, while the number for Apple’s iPhone and Google’s Android are in the tens of thousands.

HP is hoping to leverage Palm’s smartphone operating system (webOS) to become a leading competitor in the rapidly growing smartphone market, a market that had been largely pioneered by Palm. HP hopes that webOS will provides an ideal common “platform” to link the firm’s mobile devices and create a unique experience for the user of multiple HP mobile devices. The intent is to create an environment where users can get a common look and feel and a common set of services irrespective of the handset they choose.

HP also acquired 452 patents and another 406 applications on file. Palm offers one key potential competitive advantage in that its operating system can run several tasks at once, just as a PC does; however, other smartphones are expected to have this capability in the near future.
By buying Palm, HP signals a “go it alone” strategy in smartphones and tablet computers at the expense of Microsoft. HP is also hoping that by having a proprietary system, they will be able to differentiate their mobile products in a way that Apple and Google have in introducing their proprietary operating systems and distinguishing “look and feel.”

Through its sales of computer servers, software, and storage systems, HP has significant connections with telecommunications carriers like Verizon that could help promote devices based on Palm’s technology. Also, because of its broad offering of PCs, printers, and other consumer electronics products, HP has leverage over electronics retailers for shelf space.
-To what extent could the acquisition of Palm by HP be viewed as a "make versus buy decision" by HP?

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