HP and Palm: what happens next

By Nilay Patel

posted April 29th 2010 2:05PM

Feature

HP announcing that it's going to buy Palm in a $1.2b all-cash transaction certainly took everyone by surprise, but in many ways the deal makes perfect sense. HP is a gigantic player in the tech industry but has no appreciable presence in rapidly-growing mobile space, and Palm -- well, you should know how we feel about Palm by now. Even still, we can't say we were expecting this one, and it looks like most of you weren't either -- HP only got two percent of the vote in our "who should buy Palm" poll, while Engadget (that's us!) got... fourteen percent. Oops.

But now that we've had a day to wrap our heads around the news and think about what Palm and HP said to us last night and to analysts on the conference call announcing the deal, we think we've got a pretty good set of educated guesses on how things might shake out over the next few months. Read on!

The deal

First things first: the deal isn't official yet. Palm and HP have to jump through a number of regulatory hurdles first, including look-sees by the SEC and FTC. That process isn't expected to be completed -- at the earliest -- until HP's third fiscal quarter, which ends in July. When's all said and done, though, HP will spend a cool 1.2 billion dollars in cash to buy all of Palm's outstanding stock at $5.70 a share. Palm will then become part of HP's Personal Systems Group, led by Jon Rubinstein, who expected to stay along with most of the rest of the senior team -- HP told us there were "aggressive" retention plans in place.

What remains to be seen is how Palm's unique culture is absorbed into the massive behemoth of HP. Palm's relatively small and quirky, and although we're told Rubinstein is excited to lead Palm into this next phase, that may not be the case for its other engineers and employees. Palm's already lost some talent at the top in recent weeks, so we'll see if this bit of good news stems the tide or hastens the drain -- HP told us they're going to announce a new organization strategy as time goes on. And here's a fun throwaway question: as of right now, every Palm employee we've known from Jon Rubinstein on down is a Mac user. Are they all going to switch to Envy 15s now, or what? It's silly, but it's also a significant cultural difference the two companies will have to resolve.

Palm's current products

As it stands right now, Palm's current products -- the Pre / Pre Plus and the Pixi / Pixi Plus -- are unaffected by the deal, and Palm tells us that its hardware roadmap will remain unaffected in the near term. That means we should see the Pre Plus and Pixi Plus hit AT&T as planned, and whatever new hardware Palm has in the pipeline will also continue to be developed -- Jon Rubinstein told us that after a couple days of buyout excitement it'll be "back to work and full steam ahead."

It's the same story for webOS -- it should be unaffected in the near term, and things like the Ares SDK and developer evangelism should continue to go on as scheduled. Of course, it might be easier for Palm to lure devs to the platform now that HP's bank account is reassuringly behind it, but we're not hearing about any major substantive changes to the current product mix or near-term plans.

The Palm brand and future products

What Jon or HP wouldn't tell us is whether or not Palm's brand will remain -- whether or not future devices will have the Palm logo on them or just an HP logo, or whether the Palm name itself will continue to exist. That's a big question that clearly needs to be dealt with as the buyout talks wrap up and the deal gets finalized in the next new months; we're getting the loose impression that the Palm and webOS names will stick around in some way, but we were told a more definite answer won't be forthcoming until the deal closes.

We also don't really know how this deal will affect Palm's future products. HP already makes and sells the iPAQ line, which has its own proud history of past successes and recent failures, and that DNA is sure to filter into whatever products Palm / HP put out in the future. We also don't know how far into the future Palm's existing roadmap goes, and how and when those plans will be integrated with HP's plans for the mobile space -- sure, the Pre Plus will hit AT&T, but after that things are very much up in the air.

HP's current products and product plans

HP doesn't really have much going on in the mobile space right now -- there's the iPAQ Glisten on AT&T and the iPAQ Data Messenger on Vodafone, and... that's about it. We'd expect those to die a quick, painless death, along with the Android-based Compaq Airlife netbook and any other Android plans HP's been brewing up in the labs. You can't "double down on webOS" while supporting another mobile operating system, right?

Well, maybe you can. HP is listed as a Windows Phone 7 launch partner, after all, and Palm certainly has a long history of making Windows Mobile devices. What's more, HP's execs were quick to say that Microsoft was a valuable partner on the conference call announcing the buyout yesterday, but it was unclear whether they were talking about Windows Phone 7 or Windows 7 for PCs -- we can't say we're expecting to see a Windows Phone 7 handset out of HP at this point, but it's not totally out of the question.

We also don't know what's going to happen with the HP Slate, which prominently featured on several slides during the conference call yesterday. We don't know if it was just there as a way of illustrating HP's recent moves in the mobile space or a hint at something more, but our guess is that it too will die a quiet death -- sure, it might still launch in June as expected, but pushing a desktop operating system like Windows 7 onto a full slate device has always been an idea fraught with peril, and webOS seems much more naturally suited to the task. What's more, we can't see HP throwing any more development dollars at the Intel-based Slate when it just spent 1.2 billion dollars on an ARM-based mobile OS. We'll have to wait and see, and that brings us to...

Tablets, netbooks, and connected devices

Here's where it gets interesting. Although no one would officially confirm any product plans yesterday, both Palm and HP kept hinting at future tablets, netbooks and other connected devices running webOS. Jon Rubinstein told us that webOS was always designed to scale to other form factors, but that Palm was too small to make it happen while remaining focused on smartphones -- a problem that's obviously been erased by HP's checkbook. Money doesn't solve everything, though, and we'll have to see if Palm can manage to move webOS to other platforms without getting sidetracked from core OS development and improvement.

What we do know is that HP has always put effort into the touch-friendly MediaSmart and TouchSmart software layers to compensate for Windows' deficiencies with mixed results, and the acquisition of webOS and Palm's thick portfolio of touch and mobile patents will dramatically improve those products as the company blends things together on its huge selection of netbooks, tablet PCs, and slates. The future possibilities are endless: netbooks / netvertibles that dual boot webOS and Windows or even run webOS as a software layer, pure webOS tablets / smartbooks that get hours of battery life, webOS smartphones that dock into HP touch PCs and share their apps and settings -- hell, we'd even love to see HP take its touchscreen printer line to the next level with a healthy dose of webOS. Talk about the world's first web-connected printer.

Regardless of the hardware, HP has just jumped ahead years from its mobile TouchSmart offerings by acquiring Palm while dramatically lightening the load of compensating for Windows' skeletal touch support. We're just wondering how quickly and how aggressively the company will pursue the many opportunities it now has -- and whether it can remain focused on delivering an excellent user experience while doing so.

Marketing

We'll keep this one short: neither HP or Palm have been very good at marketing themselves lately, although Palm's gotten just slightly better. The combination of HP's ham-handed Halloween fonts and cheesy in-house promotional videos with Palm's "we'll sell it to chicks!" instincts could be disastrous -- we can already see the Vivienne Tam Pixi covers being mocked up. We're hoping that both companies realize a historic buyout like this requires some fresh new creative on the marketing side -- and if we hear anyone besides an extremely sarcastic Ross Rubin say "the smartphone is personal again," we may just run for the hills.

Wrap-up

After decades of insane restructurings, name changes, and near-death experiences, Palm has once again ceased to be an independent company, and HP is now a major player in the mobile space, ready to spend the cash required to make its new in-house OS as competitive as possible across a huge range of devices. Just think about that for a second -- the new list of mobile heavyweights is Google, Apple, Microsoft, Nokia, RIM, and... HP. We can't say we expected that when we checked into work on Monday.

We've barely scratched the surface here -- we're sure to feel the ripple effects of this buyout for years to come. We'd be lying if we told you we could predict with any certainty how that will play out over the next five years, or even necessarily the next five months, but we are certain of one thing: if you thought the mobile market was already bonkers, you ain't seen nothing yet.

[Thanks to Peter. P, Ousmane Mariko, and cynomyso for some of these great images!]

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