HP buys Palm — who cares?
HP’s deal to buy Palm underlines the keenness of PC vendors to jump into the booming smartphone game, but will likely have very little impact on the smartphone market. HP has agreed to pay $1.2 billion for loss-making Palm, best known in recent years as the investment target of U2 lead singer Bono. The firm only sold 2.4 million smartphones in the last 12-month period, giving it just over 1 percent of the market.
In the last few years all top PC vendors — including Acer, Lenovo and Dell — have rushed to the surging smartphone market hoping to boost profits. So far only Apple has succeeded, and it has taken over two years for it to build up global phone distribution.
Top smartphone vendors Nokia, RIM and Apple boast much higher profit margins than PC vendors. HP’s gross margin for its most recent quarter was 22.8 percent, just half Research in Motion’s 45.7 percent margin, while Apple’s was 41.7 percent.
Helped by new features and cheaper prices the smartphone market grew through the recession, and is expected to jump a further 46 percent this year, according to researcher Gartner.
Analysts said the HP-Palm deal will likely have little impact on the global smartphone market any time soon, with vendors strong in the United States set to feel some pressure. “Does this change anything in the short term? I don’t think so,” said Carolina Milanesi from research firm Gartner. Ben Wood, research director at CCS Insight, agreed. “I don’t think big phone manufacturers will be losing any sleep over this. We’re pretty sure they all did due diligence on Palm and decided they did not need the assets,” he said.
Analysis said the deal was set to worry HP’s closest rivals — Dell, Toshiba, Lenovo and others — who all aim to have a stake in the 1.2-billion-unit mobile phone market, especially with demand for handsets with PC-like features growing.
Palm’s crown jewel webOs platform — which has failed to impress the buying public — will controversially give HP an edge over rivals using software from Google or Microsoft. “They are more in control of their own fate,” said Gartner’s Milanesi. Own software gives HP the opportunity to differentiate from rivals and potentially get better margins.
HP’s production and sales network are crucial for Palm, which has been too niche a vendor against much larger rivals in the industry, where scale is crucial in driving down costs. Palm last reported an annual profit for the fiscal year ending May 2007, and only 408,000 Palm phones were sold to consumers in the February quarter. This compares to Nokia’s quarterly volumes of around 20 million smartphones, with RIM and Apple selling around 10 million smartphones.