MediaFile

Dell and Palm – Who needs whom?

June 12, 2009

When Dell hired Motorola’s cell phone president Ron Garriques in 2007, the talk was that the PC giant was preparing to enter the smartphone market.

More than two years later, Dell is still without a handheld gadget.

Instead of trying to build its own smartphone, Dell should simply acquire Palm, said Collins Stewart analyst Ashok Kumar in a note to investors on Friday.

Kumar posits that a Dell acquisition of Palm would help both companies, giving Dell a hot new product in Palm’s recently-released Pre, while giving Palm the deep pockets necessary to hang with the big guys.

“This acquisition will be born out of mutual necessity and represent a strategic fit for both parties,” wrote Kumar in a note to investors.

Palm’s Pre has received good reviews, but there are concerns that Palm’s supply of the new gadgets may be constrained amid stiff competition from the likes of Apple’s iPhone and Research in Motion’s Blackberry.

With only $260 million in cash, Palm doesn’t have the balance sheet to go through an extended period of cash burn as it ramps its production of Pre phones to the level necessary for it to become a force in the market, wrote Kumar.

Meanwhile, Dell, which has repeatedly stated its intention to acquire outside companies, has more than enough cash to grab Palm. Kumar said Dell could afford to spend up to $3 billion, or a third of its gross cash, on an all-cash transaction and that Palm falls well below that threshold.

Writing on the Barron’s Tech Trader Daily blog, Eric Savitz cites another benefit from such a deal: newly-appointed Palm CEO Jon Rubinstein, a former Apple executive, could be just the guy to take the reins from Michael Dell.

“An ex-Apple exec at the helm of Dell is an intriguing idea, no?” wrote Savitz.

(Photo: Reuters)

Comments
7 comments so far | RSS Comments RSS

The idea of Dell buying Palm is interesting however, the idea of a former Apple executive replacing Michael Dell needs some rethinking. One need only look at Apple when Steve Jobs is not running the show to see that Apple is a one man organization. Without Jobs, the various Apple executives did little or nothing to help the company.

Posted by Mike | Report as abusive
 

I think they need each other. Both have been growing weak. Together maybe they can innovate and produce something to compete against the likes of Apple and Research in Motion.

 

This idea is quite intriguing, however I would hope that if such a deal happens that the Palm brand would be retained. Dell\’s brand image is less than attractive at present IMO. Palm has created a lot of buzz around the Pre and it\’s almost like a rebirth. I\’d hate to see this brand (in image only) get swallowed up by Dell.Just my 2 pennies

Posted by Designlevel2 | Report as abusive
 

A mistake. During the dotcom collapse, insiders harked on what a great combination it was for Time Warner to purchase AOL as its online presence, since the company was late to the game. We all know how that turned out. Not one of the industry ‘experts’ or MBAs had the smarts to forsee that making such a purchase was ill-advised to begin with. The same holds true here for Dell in this situation. Purchasing Palm would not be advised at this time, unless Dell wants to blow through the remainder of its cash trying to prop this brand up against the iPhone and its clones. Dell should focus on what it does best: the desktop, hardware and its many incarnations, which its core market. It is quite unwise to spend on risky ventures right now, especially in a contracting global market.

Posted by Robert | Report as abusive
 

The acquisition of Palm by Dell would be of great benefit for Dell, however, one of the major issues is ego versus ego – Michael Dell versus Jonathan Rubinstein. Jonathan Rubinstein would most likely appreciate the opportunity to head Dell, just to show Steve Jobs he is of equal ability. He would have to accept being second in command initially, but really running the show, just as he was at Palm. The question is will Michael Dell be willing to let his ego step aside and allow someone else to take credit for the success of the new Dell under Jonathan Rubinstein?Is the acquisition of Motorola an option? What products do they have in the pipeline? Have they switched their strategy to serve the low end market so much so that they have abandoned Smart Phone Development?If Motorola mobile can be acquired with a limited attachment of debt, then Motorola could make sense if they have smartphone and netbook products in development.There is also the question as to whether Palm violated any Apple patents in developing the Pre. Apple made it clear they would not tolerate infringement.The future of computing is hand-held devices, including smart phones, however, as the competition increases and LG, Samsung, and RIMM increase their marketing, margins will decrease, to the point where only the leanest will survive.Apple has the advantage of a “Cult Like” following so their margins will remain better than average, however, Dell and HP will always be fighting for market share and margin.Can Apple survive without Steve Jobs. The market has shown displeasure with Steve Jobs not making some sort of appearance at WWDC and are openly worried about his health.When evaluating the merger, the primary focus has to be on the future margins. If the margins remain healthy, then the Palm acquisition could makes sense. Dell must have a hand-held computing platform, or they will be at a tremendous disadvantage. Also, has aggressive markerting by Nokia, Samsung, LG, RIMM, and Apple been properly considered.Operating systems is another issue to be examined. There are several major players, Microsoft, Google, Rimm, Apple,and now WebOS by Palm. The Palm WebOS appears to be a strong, intelligent system. However, Microsoft will never stand still and will eventually develop the stronger Operating System. There can only be a limited number of operating systems and it will likely fall to Microsoft, Google, and Apple. Application Developers just are not going to continue developing Applications for all operating system, unless they have the quantity of dispatched units to justify the development costs.Before considering the acquisition of Palm by Dell there must be a thorough test of the Palm Pre. Currently production problems are limiting market penetration, and they must maintain sales at an average of at least 40,000 Pres per week, however, with the competition becoming more aggressive, Palm Pre is likely to sink to 20,000 or fewer units per week. Currently Palm is way overvalued based on their balance sheet. When Palm goes below $9, then an acquisition may be justified.

Posted by Wayne Norman | Report as abusive
 

I am a long time Palm fan and love the Pre. However if Dell buys Palm, then they can immediately count me as a permanently lost customer. I HATE DELL! I’d love to see HP buy Palm, HP is a big supporter of all things Linux, and the webOS would be a perfect fit at HP.Dell = Fetid Smell

Posted by Joop deBruin | Report as abusive
 

For years buying Dell has meant a bit of a break for the corporate checkbook but generally spotty engineering and a bit too many calls to support. They’re no HP when it comes to design and quality. In fact, they’re no Palm, engineering-wise.A lot of consumers want “cheap.” But the bulk of serious consumers and business users want quality and performance. A brand they can depend on. HP has eclipsed Dell in sales and it’s always been better from an engineering standpoint.Palm builds great products and a top CEO. Palm/Dell would be a complete turn-off to consumers. Hopefully Jon Rubinstein sees the limitations of being Dell and looks for a suitor with an engineering name and culture more aligned with Palm’s.

Posted by Rob | Report as abusive
 

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