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HP-Palm: Everyone’s a loser but Apple

Hewlett-Packard’s Palm buy could be a good fit, but it’s got a long way to go before it can catch up with the iPhone.

Not even a year ago Palm (PALM) and its chief investor, Elevation Partners, confidently spun a yarn about the pioneering company’s long-term plan. The smartphone market was nascent. It was going to be massive. Even a small share of such a big market would lead to huge success for a smaller player like Palm.

Unfortunately for Palm, while the first two legs of its narrative stool are correct, the third isn’t, which is why Palm folded Wednesday with its fire-sale purchase by Hewlett-Packard (HPQ). Let this be a cautionary tale for all sorts of reasons:

Managerial hubris. Palm CEO Jon Rubinstein has had an inspired career at HP, NeXT and most importantly, Apple (AAPL). He likely is one of the great product engineers ever. But as CEO of a underdog company where marketing and finance are tricky, complicated and demanding, even Rubinstein’s brilliance weren’t enough. (To his credit, he put on a brave face until the end.) The bitter pill for Rubinstein will be that he wasn’t able to accomplish on his own what he was under the tutelage of Steve Jobs. There is no shame in this. Almost no one has accomplished what Steve Jobs has. To try was valiant. To pull it off proved another story.

Investor hubris. Books may well be written about Palm and the merry band of ex-Apple executives who tried to revive it. Books also may be written about Elevation, which was supposed to focus on digital media and entertainment but instead got itself twisted around lost causes like Palm (a phone company), Forbes (an old media company), and (a busted dot-com). Again, Apple is part of the story. Elevation partner Fred Anderson was CFO at Apple and instrumental in Apple’s own rejuvenation. He also got thrown under the bus in the Apple backdating affair. Though he’s too much of a gentleman to say so, Palm was a form of salvation for Anderson.

No company can do everything. HP is getting Palm for a relative song, and the purchase is a qualified win for HP personal-computer executive Todd Bradley, who has a complicated history of his own with Palm. (He once was CEO of one of its earlier iterations.) Yet it’s telling that HP found itself in the position of having to buy Palm at all. HP was an early and important player in smartphones itself as a result of its acquisition of Compaq. As with much of the rest of its business, HP’s smartphone strategy was based on Microsoft (MSFT) software. Today, HP is a non-player in smartphones, hence its acquisition of struggling Palm, which to its credit has a superior product to HP’s and decent relationships with wireless carriers.

By buying Palm, HP gets very good technology, some outstanding people, and existing carrier contracts. HP in turn will be able to throw its considerable marketing and purchasing power behind Palm’s phones. HP is years behind Apple, though. Apple, again, is the sole unconditional winner. At least for now.

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