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  1.    #1  
    Smartphone Wars' New Force: Hewlett-Packard & Palm

    The smartphone wars just got bloodier, with HP's arrival.


    Last week, Hewlett-Packard (ticker: HPQ) swooped in and agreed to pay $1.2 billion for poor, beleaguered Palm (PALM), which was running out of customers, cash and time. Had Palm not been acquired, it would likely have been destined for bankruptcy court. The company disclosed last week that revenue for the May quarter will be only $90 million to $100 million, dramatically less than Wall Street had been expecting. Palm also said it would burn as much as $240 million in cash in the quarter, leaving it with as little as $350 million. At that rate, Palm would have been out of cash by the end of 2010.

    But that doesn't matter anymore. HP, which previously had a gaping hole where its mobile-device strategy was supposed to be, will use the real prize in the Palm acquisition -- the company's WebOS software -- to launch new mobile devices, including phones, tablets and maybe even netbooks. Deep-pocketed HP will invest heavily in research and development, sales, and marketing to build on Palm's foothold in the mobile business.

    This is a pretty exciting development if you happen to be Elevation Partners, which invested $460 million in Palm and now gets out with a very small profit -- about 5%, the Wall Street Journal calculates. And it certainly is happy news if you happen to work at Palm, where some senior staffers are expected to get significant bonuses to stay -- not to mention continued employment. It's also good news if you own a Pre or a Pixi, the two Palm phones that run on the WebOS software. It also should cheer the handful of developers who created applications for them and encourage them to develop more.

    But for pretty much everyone else in the smartphone business, this is not good news -- not good news at all. In fact, as Avian Securities analyst Avi Cohen bluntly asserted in a research note last week, it is "bad for everyone," by which he meant Apple (AAPL), Research in Motion (RIMM), Nokia (NOK) and Motorola (MOT), among others. Cohen notes that PC companies don't need cellphone-type margins to make the business work, because they are making good profits in their other businesses. That means "they can be much more aggressive in capturing share and will certainly drive down margins for everyone." Think of it this way: Imagine that you're in a highly competitive 100-meter sprint, whose entrants include various Olympic-caliber runners, along with your grandmother. And then Granny suddenly pulls out, handing over her spot in the starting blocks to Usain Bolt.

    Previously, the smartphone players were competing with Palm, whose primary assets were a nice operating system, a shrinking cash pile, two phones that aren't selling, a handful of uneasy developers, spit and a prayer. Now, they must battle Hewlett-Packard, the world's leading seller of personal computers, a company that generates close to $30 billion in sales every quarter -- about 300 times what Palm will do in its May quarter.

    The combatants in the smartphone wars now include almost every major consumer-technology company, from Google (GOOG) to Microsoft (MSFT) to Sony (SNE) to Samsung (5930.Korea) to Lenovo (LNVGY) and a host of others. HP's inclusion only makes things tougher for everyone else. A quick rundown:

    Apple: Least vulnerable of the major players, but certainly would rather compete with Palm and its shrinking balance sheet and market share than with HP. Hewlett-Packard plans to enter the tablet market, and of course already competes with Apple in notebooks and desktop PCs. (HP's current strategy, by the way, is much changed from the Carly Fiorina days, when it once licensed the right to sell HP-branded iPods.)

    Microsoft: Loses a potential customer for Windows Phone 7. Even if it hadn't bought Palm, HP would have sought to enter the market, and creating Windows-based devices was an obvious alternative.

    Google: HP's other obvious alternative? Build Android phones. Google is seeing some pushback on Android lately; the last thing it needs is for developers to conclude that WebOS is a good platform that's likely to gain traction.

    Motorola: Chose to bet the ranch on Android, but easily could have been the Palm buyer a year ago. Now must kowtow to, while also competing against, Google. Motorola reported better-than-expected first-quarter results last week, but mobile-phone unit sales continued to shrink.

    RIM: In the long run, a big potential loser if HP can leverage its deep hooks into corporate information-technology departments and convince big companies to see WebOS devices as a viable alternative to the BlackBerry.

    Nokia: Already slashing prices to maintain market share, the last thing the Finns need is HP and its PC-industry margins crashing into the mobile-phone biz. One more strike against a troubled giant.

    Dell: Yeesh, did it even consider bidding? Like HP, it has no real market share in mobile phones, and never has made much of a dent in other mobile devices. (Anyone still use a Dell DJ music player? A Dell Axim PDA?) Like Motorola, it will have to pick a third-party operating system or two, and live with the consequences.

    As I have written before in this column, there are too many mobile-market players -- too many handset makers, too many operating systems, too many carriers. Consolidation is needed. What we just got instead is the addition of one more giant-sized, cash-rich, manufacturing-savvy competitor. That's good for smartphone buyers, bad for smartphone-sector investors.
    Please Support Research into Fibromyalgia, Chronic Pain and Spinal Injuries. If You Suffer from These, Consider Joining or Better Yet Forming a Support Group. No One Should Suffer from the Burden of Chronic Pain, Jay M. S. Founder, Leesburg Fibromyalgia/Resources Group
  2. ray1b's Avatar
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    This article says there are only a handful of developers. It will be nice if they can print facts.
  3. #3  
    Unlike Motorola, I am betting the farm on HP and WebOS. Figuratively.
    Nice article. It would seem that the writer knows a little about the industry unlike some we have seen.
    Sprint: 2-TouchPad 32g, Frank.-Pre-2, Pre-, MiFi & 1-LG Lotus with Xlink tied to home handsets. Backups: 650 & 700wx

    HP Please release the CDMA Pre3 phones!
    We want them!!!
  4. #4  
    Quote Originally Posted by ray1b View Post
    This article says there are only a handful of developers. It will be nice if they can print facts.
    Compared to Apple and Android, there are only a "handful" of developers. That's not a slight against those developers who've been writing webOS apps, it's merely reality. Personally, I'm tickled pink for the relative few webOS developers and hope that they enjoy some additional success from the acquisition, and I'm looking forward to seeing many, many more developers making webOS apps. But the reality has been that webOS developers are a small group compared to the competition.
    Treo 600 > Treo 650 > HTC Mogul (*****!) > HTC Touch Pro (***** squared!) > PRE! > Epic
  5. #5  
    The other thing they're completely ignoring is that we KNOW Dell's device strategy now. They're not picking one side or the other for Google vs MS, and they all look to be pretty impressive devices (though not necessarily ones I'm interested in).

    It'd be nice if the author kept up to date on happenings in the smartphone world before writing about them.
  6. #6  
    Pretty interesting and unbaised read. I liked how they didn't go out and say hp WILL fail, or hp WILL take over the market. All they did was lay out the facts and discuss what it means for everybody. I can respect this type of journalism.
  7. #7  
    that was a great read
  8. bdog421's Avatar
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    Good overall article, the fact of it all remains webOS+proper development funds=awesome. That said palm has done extremely well thus far, but with a bigger team of software specialists the future is so bright for webOS.
  9. #9  
    Powerful device with much memory, ram, and speed + Web OS = The ultimate smartphone. The powerful apple can't even compete with that.
  10. #10  
    Seems like a credible take on things as they are....
    "When there is no more room in hell, the dead will walk the earth"

    PM me your questions, If I cant find an answer, I'll show you who can.
  11. Olidie's Avatar
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    great read. This article shows the difference between a true journalist and opinionated blogger.
  12. #12  
    nice read, though I disagree with the too many choices being bad. I want competition and LOTS of it, I want every company out their to make the absolute best phone they can make to try and convince me to buy theirs, in the end all it means everyone steps up their game and the ones that don't get "consolidated"
    iPhone 4s 64gb for personal, at&t Prē 3 for business. Best of both worlds.
  13. #13  
    Quote Originally Posted by ray1b View Post
    This article says there are only a handful of developers. It will be nice if they can print facts.
    We don't get no respect!!

    (in my best Rodney Dangerfield voice...)
    My device history:

    - Jim J.

    (On Sprint for many years)
  14. #14  
    Nice read! It confirms what those who have believe in to webOS already know. HP & Palm = Big Win!!!

    Gee Brain, what do you want to do today? The same thing we do everyday Pinky - Try to take over the world!
    "Patience, use the force, think." Obi-Wan

    Ready to try Preware? Get this first: Preware Homebrew Documentation
  15. #15  
    i think the gist of the article is nothing new. Competition is good for consumers, but bad for investors who have to pick sides.
  16.    #16  
    Thanks all, I agree with all of you, take care, Jay
    Please Support Research into Fibromyalgia, Chronic Pain and Spinal Injuries. If You Suffer from These, Consider Joining or Better Yet Forming a Support Group. No One Should Suffer from the Burden of Chronic Pain, Jay M. S. Founder, Leesburg Fibromyalgia/Resources Group

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