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10 Reasons Why HP Can't Save Palm

There are benefits to HP buying Palm, but saving Palm isn't one of them.

On the plus side:

  • Sure, the deal means Palm isn't going belly up.
  • And a 25 percent premium over a share price down 75 percent from its 52-week high and, get this, down 99 percent from its IPO, is something, I guess.
  • And private equity firm Elevation Partners, which owns about a third of Palm, gets to more or less break even on a three-year investment.
  • As for HP, it gets an operating system and a platform, albeit full of security holes and performance issues, to take on the likes of Apple and Google in the Smartphone and upcoming tablet wars.
Other than that, it's all bad news. Here are 10 Reasons Why HP Can't Save Palm:
  1. Palm's share of the global smartphone market has fallen off an already low cliff, from 3.5% in 2005 to just 1.5% last year, according to IDC (from the Wall Street Journal).
  2. Did you know that HP makes a smartphone? Ever heard of iPAQ? I didn't think so. That's how much HP knows about smartphones.
  3. Palm lost $753M on revenues of $735M last year. Those are some ugly numbers.
  4. On the balance sheet, Palm has $390M in debt and only $265M in cash. More ugly numbers.
  5. With Blackberry, Apple, Google, and Microsoft fighting it out in the smartphone platform war, HP-Palm has as about as much chance of gaining serious ground as any of those companies would have in the printer market against HP, Canon, Epson, and Brother.
  6. Marketing 101: Being a tiny and shrinking player in a highly-competitive, capital-intensive, innovation-centric market against huge, entrenched competitors without a unique value proposition is a recipe for disaster on so many levels it's scary.
  7. Wall Street analysts, typically bullish on all but the dumbest acquisitions and highly supportive of HP CEO Mark Hurd's magic touch, have widely panned the deal, sending HP's stock down roughly 1% on a day when all market indices are up over 1%.
  8. One of the keys to winning in smartphones is gaining traction with developers and apps. What developer in its right mind would right apps for HP-Palm's paltry and shrinking share of the market?
  9. One of the reasons HP is buying Palm is to use its WebOS platform to gear up for battle against Apple's iPad in the tablet market. It's going to need it. Not even a decade head start will keep Apple from destroying HP's tablet market share, although I admit that remains to be seen.
  10. "So HP is paying over a billion dollars for a company with rapidly decelerating sales and units, with almost no customer traction, and who would have likely been bankrupt in 3 quarters," wrote Kevin Hunt of Hapoalim Securities (per MarketWatch). Enough said.
Look, I'll be honest. I think Mark Hurd has been a brilliant turnaround CEO and HP has been one helluva success story since he took over. Also, this is a big strategic move and HP is sitting on a hoard of cash. While this is going to be a drain on HP's profits for a long time to come and the odds are against, I do wish them well on this deal. They're going to need it.