Life After Palm: HPQ’s Fate, Possible Fortune in Smartphones

HP's making the right moves, but competition might be too fierce


The International Data Corporation released its most recent Worldwide Quarterly Mobile Phone Tracker report on Jun. 9, laying out who controls the smartphone market in terms of both actual handsets and the operating systems that run them. Google (NASDAQ:GOOG) is the frontrunner in the operating system world thanks to Android, followed by the declining Nokia (NYSE:NOK) and the stable Apple (NASDAQ:AAPL).

When it comes to manufacturing, Nokia still is king (but falling fast), Apple is following and BlackBerry creator Research in Motion (NASDAQ:RIMM) is just behind, fighting for relevance. The rest of the lists are made up with familiar players fighting over what remains in the market: Motorola (NYSE:MMI) is jockeying with Samsung and HTC on the hardware side, and Microsoft (NASDAQ:MSFT) still is seeking a role for the Windows Phone 7 operating system.

Hewlett-Packard (NASDAQ:HPQ) doesn’t appear on either list – not with its Palm smartphones or the webOS operating system that powers them.

This is troubling for HP and its investors considering the company spent $1.2 billion to acquire Palm and its wealth of intellectual property in 2010. It’s also a sad state of affairs for a brand and technology pedigree that paved the way for the modern smartphone business. That industry will ship an estimated 472 million smartphones worldwide before the year is out, but even with a newly revamped webOS and support from app developers interested in the platform, it’s unlikely many of those will be Palm devices.

What’s next? How does HP uses Palm and its assets to chisel away a chunk of market that is fueled by the affordable ubiquity of Google Android devices and the wild popularity of Apple’s phones? Can it even dent the businesses of falling stars like Nokia and Research in Motion?

HP has taken a promising first step in finding its place in the new smartphone world: It has killed Palm. The company announced July 11 that the Palm division would be renamed the “webOS global business unit.” Although an HP spokeswoman told Venture Beat that the move was “basically a renaming and shuffling,” it does represent the death of the brand. The company’s new iPad competitor, the TouchPad tablet, doesn’t carry the Palm name, nor do the company’s new flagship smartphones. HP’s hopes are in the HP Veer and the HP Pre (successor to the Palm Pre).

The Pre is expected out on the Verizon (NYSE:VZ) network before the end of July. The low-cost Veer was released on the AT&T (NYSE:T) network in May. At $99 with a contract, it’s difficult to imagine consumers opting for HP’s tiny phone over the cheaper iPhone (albeit the older 3G model). The device also has been less than well-received by the press. Tech Radar gave the Veer a particularly poor review Monday, saying the phone’s promising webOS features are limited because of a flat-out bad design of the phone itself.

HP must overcome the style hurdle if it hopes to compete with Apple and Google’s manufacturing partners, and it is taking steps in the right direction. Ditching the Palm brand in favor of the more consumer-friendly and recognizable HP is wise. No matter what, though, the odds are stacked against HP in this market. It might be time to give up the manufacturing ghost and focus purely on spreading the webOS software as Google has with Android.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

Article printed from InvestorPlace Media,

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