John Paczkowski

Recent Posts by John Paczkowski

HP-Palm: The Analysts Weigh In

Now that they’ve had some time to digest the news of Hewlett-Packard’s (HPQ) acquisition of Palm (PALM), analysts are weighing in on the deal. More than 30 of them issued notes on the subject this morning, and they were largely positive. Consensus seems to be that while the deal seems expensive given Palm’s dire straits, it’s a wise move for HP–one that could make the company a player in the mobile devices market and strengthen its long-term positioning as well.

“The $1.2B transaction value represents <10% of HPQ’s current cash balance and only ~1% of HPQ’s market value,” Deutsche Bank analyst Chris Whitmore wrote in a note to clients this morning. “Meanwhile, the payoff could be very sizable to HP who has the potential to capture more value in large, rapidly growing markets (smartphone, Slates/tablets, etc).”

BMO Capital Markets Keith Bachman described the deal as a savvy one as well. “We see this as a relatively low-cost bet to meaningfully change the consumer business model and margin profile for a business (PCs) that get little to no current respect from investors,’’ he said.

Over at Kaufman Bros., analyst Shaw Wu was similarly enthusiastic, saying HP’s acquisition of Palm could materially improve its consumer business. “We like the deal as we believe it makes longer-term strategic sense and gives HPQ access to a key piece of intellectual property in webOS and better control of its destiny in the mobile devices space,” he said. “We have always believed that webOS had some value as one of three vertically integrated platforms in the smart phone space (the others being AAPL and RIMM). However, we see it as much more than smart phone technology as we believe webOS can be leveraged for use in other mobile devices including tablets, netbooks and potentially even PCs one day.”

Morgan Keegan analyst Tavis McCourt was a bit more cautious in sizing up the deal, wondering if Palm’s purchase price wasn’t a bit too high. Yet he, too, acknowledged that the upside here is significant if HP plays its cards right. “Was Palm worth $1.2 billion?” he asked. “No one will know for a few years we suspect, but if HP is successful in turning this into their consumer platform, this will go down as a ‘home run’ acquisition, if not, we suspect it will have limited impact relative to HP’s overall business.”

Faily rosy sentiments, these. That said, there were a few dour ones in the mix as well. Forrester Research analyst Charles Golvin decried the deal as bad strategy. “The good news is that HP made a strong move toward becoming a player in the mobile market,” he wrote. “The bad news is that it’s the wrong move. Palm could be valued for its brand, its intellectual property, its platform, or its people. HP doesn’t need the Palm brand; the IP helps an existing player not a new entrant; we don’t think the WebOS platform is viable long term in the face of its competition; and HP could sweep up Palm’s people individually at a much lower price. HP needs a strong presence in mobile, but Palm doesn’t deliver that.”

Then there was this, from Kevin Hunt of Hapoalim Securities who raised an eyebrow over Palm’s latest 8K filing:

“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,” he noted. “… In effect, H-P is paying $1.2 billion for an operating system and some engineers, and they will have to fund significant losses for an extended period before they have any hope of making money in the smartphone space.”

Hard to take issue with that , given the extent of Palm’s financial deterioration. But as I noted here yesterday, this isn’t simply a smartphone play. It’s far, far broader than that. HP is buying an OS that will give it control over both the hardware and software user experiences, something it’s never had before. Is $1.2 billion too high a price to pay for that? We’ll see …


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