Wednesday, April 28, 2010

Detailed Discussion of HP's Agreement to Acquire Palm

HP (NYSE: HPQ) and Palm, Inc. (NASDAQ: PALM) today announced that they have entered into a definitive agreement under which HP will purchase Palm, a provider of smartphones powered by the Palm webOS mobile operating system.

Today, Wednesday, April 28, 2010 at 5 p.m. ET / 2 p.m. PT, HP held a live audio webcast for financial analysts and stockholders to discuss HP's agreement to acquire Palm.

Here is a summary of the call with my comments as well.


Mr. Jim Burns, Hewlett-Packard 's Vice President of Investor Relations, began the investor call expressing his excitement in the recent announcement, “Thank you. Good afternoon and thank you all for attending this call on such short notice. We are very excited today to announce that Hewlett-Packard and Palm have reached a definitive agreement for Hewlett-Packard to purchase Palm at a price of $5.70
per share, giving the transaction a total enterprise value of $1.2 billion. ”

He mentioned all the typical “forward-looking statements” and “Regulatory approval pending” warnings before proceeding to stating that the deal will be “financed with existing cash” and “is expected to close in the third quarter of HP's fiscal 2010 ”.

Todd Bradley, Executive Vice President of HP's Personal Systems Group, discussed the strategic benefits of the transaction.

He began, “The market we are focused on, connected mobile devices, is large, profitable and growing. It is driven fundamentally by our customers' need to be connected to the people, information and entertainment that matter most to them. We believe that the acquisition of Palm is a transformational deal in the connected mobility market, opening up opportunities for further profitable growth by leveraging the unique strengths of Palm, along with the unique strengths of HP. ”

Clearly HP is interested in Palm's intellectual property (IP). Bradley continued, “Palm's world-class technology, coupled with HP's scale and financial strength, will accelerate our strategy within the connected mobile device market... This market presents a significant opportunity for profitable growth.”

HP clearly wants to get in the increasingly crowding smartphone market, “The smartphone market alone is over $100 billion and growing over 20%. We see further opportunities beyond smart phones into additional connected mobile form factors.”

It is no secret that HP is interested in “additional connected mobile form factors”, as they have played in this arena for years with their Compaq\HP iPAQ.

The iPAQ refers to a Pocket PC and personal digital assistant first unveiled by Compaq in April 2000; the name was borrowed from Compaq's earlier iPAQ Desktop Personal Computers. Since Hewlett-Packard's acquisition of Compaq, the product has been marketed by HP. The device was the main competition to the Palm handhelds, but provided more multimedia capabilities using a Microsoft Windows interface. After 10 years of competing with each other, these two talented technology companies are combining for obvious reasons.

One “connected mobile form factor” that has helped bring about this acquisition\merger sooner, rather than later is the tablet PC – specifically the Apple iPad. While Bradley didn't mention Apple or the iPad directly, make no doubt it was on his and other executives minds as they prepared his next words, “We see further opportunities beyond smart phones into additional connected mobile form factors. We anticipate that with the webOS we will be able to aggressively deploy an integrated platform that will allow HP to own the entire customer experience, to effectively nurture and grow the developer community, and to provide a rich, valued experience for our customers. With Palm HP acquires a strong operating system to deliver a unique customer experience in applications to over 2000 apps and growing, a platform to deliver mobile cloud-based services, and an opportunity to drive preference in the market among consumers. ”

Apple's iPhone commercials have ushered into the consumer's mindset expectations of applications or apps. Prior to the iPhone, there was hardly any promotion of apps to the masses. Now it is almost mandatory that apps be mentioned in the promotion of any smartphone. Shouldn't HP understand this more than any company? As a hardware manufacturer, they understand (or should) that most people use their computers for the applications that are executed on them.

Palm has some incredible intellectual property, especially in the patents that they own. They have engineers that are very talented in the mobile space. They just didn't have the deep pockets to compete with Apple. Well they do now, Bradley said it this way, “Palm and HP each brings unique assets and advantages that we expect to contribute to a winning combination. At the foundation of both companies is a deep expertise in mobility, a culture of innovation and strong carrier relationships. Two Silicon Valley-based technology companies with a passion for innovation. Behind this technology is a valuable IP portfolio including cloud-based assets which will advantage HP competitively. And behind that IP is a deep bench of engineering talent led by a strong and experienced management team. ”

Jim Burns added that they are ensuring that they keep this talent team around long term, “We have a significant retention program that we put in place as part of the deal.” Bradley chimed in too, “Look, I think I will characterize for Jon, as we have had pretty specific discussions, he is very excited about staying and building out -- actually executing his vision for the webOS into a broader market, and I think HP brings those capabilities to him to do that. And I think it is fair to say that his team is excited as well.”

So the people are the key to the success of this deal, but it is also what these people are making that makes the deal possible too.  When asked why HP didn't just design their hardware to run the Android OS, HP was clear; they will still do partnerships with the likes of Microsoft and others where it makes sense, but when it comes to the WebOS, it just makes sense to to do that too.

“Palm has developed a world-class mobile operating system and platform. The integrated user interface they have architected and implemented delivers an incredible experience from true multitasking on the device to a rich and growing set of applications. ” Clearly “multitasking” is a buzz word that consumers are quickly learning to add in their minds and expectations of a mobile device.

So Palm bought to the table: the right operating environment, a valuable IP portfolio, and the people who know how to drive innovation that matters to customers. What does HP brings to the table? Bradley made that clear too, “the financial strength and the commitment to further invest to accelerate profitable growth in the connected mobile device market. We intend to invest heavily in (WebOS) product development and go to market to drive this business aggressively. ”

HP is excited to get hold of the patents and especially the WebOS. “webOS was built as a true mobile platform. With the Web at its core, it enables significant scalability, ease of application development, and portability to multiple devices. The environment performs the way you would want and expect a personal connected device to operate with application multitasking, integrated personal information, and Web services and an intuitive gesture interface. With more than 2000 applications and growing, this platform and the Palm developer program are gaining momentum. With HP, given the financial commitment we intend to make to this operating environment, we expect this pace to accelerate. ” The message is clear, we will compete against Apple, Google, HTC, Samsung, Dell and anyone else that wants to battle in the mobile economy. Make no doubt about it, WebOS is a powerful operationing system and clearly HP recognized this fact.

Palm was hurting because of the lack of funds. HP was hurting because they had not had any new mobile innovation in years. Now they the two make a heck of a team, “Together HP and Palm will make a powerful combination. With our long histories in Silicon Valley, our values and vision are consistent, and our strengths are complementary. Palm provides HP with the opportunity to move forward with world-class technology and an integrated customer experience. Coupled with our scale, global reach and investments in the ecosystem, we expect we will see solid growth. We are excited about accelerating our capability to provide our customers with compelling connected mobile experiences.”

Bradley also stated, “ we intend to operate it (Palm) as a business unit, which is in line with the way we are structured today. I think as I said earlier Jon Rubinstein is very excited about the opportunity HP represents to build out the platform, and I think it is fair to say his leadership team is as well. ”

During the questions and answer session, Bradley added this, “While Palm currently has the Pre and Pixi smartphones, we see that as one space that right now is very consumer-oriented, and we will look at how we leverage our both retail and commercial channels to broaden the distribution of that -- those set of products. I think the tablet/slate products are such new markets, we see opportunities broadly for consumers, but at the same time, having just finished up our partner conference, enormous interest on behalf of channel partners with specific vertical deployments in things like healthcare and education. So I think you will see these products deployed in both markets or both segments, consumer and commercial.”

Rod Hall, an analyst for JPMorgan , had a great question that's worth showing, “...One of the main questions we have got is we have seen Apple succeeding as a content platform in addition to the hardware platform that they are providing. So they are doing a lot of content aggregation. Do you intend to get into that side of the business to move the platform forward? Can you just talk a little bit about what your content strategy might be?"

Todd Bradley responded, “Our focus is to provide connected devices that enable people to safely and seamlessly connect to that information that is important to them, be that entertainment or work or personal data. So I don't think we are content creators, but we are access providers. ”
Rod Hall pressed, “So does that mean you would look to do deals with music companies and video companies and things like that, kind of along the lines of what we have seen Apple do? ”

Bradley finalized, “Well, look, we are not going to get into the specifics of how we will execute the strategy that we have laid out for the acquisition. I think we will do more of that as we get the transaction closed.”



Well I personally think content is going to be a key factor as well and will be discussed in great detail over the coming months and years.  At this time, HP has not announced any specific time lines at this point for any new product. I can not wait to see the first product that this team produces.


SPEAKING POINTS FOR PALM VP/SVP LEADERS TO EMPLOYEES

 
It has been a busy few months at Palm, and it’s going to get even busier as today’s announcement accelerates our plans.

 
This process was entered into because the leadership team and the board took a close look at the business and determined we needed to increase our scale and speed of development to succeed.

 
Following a formal review process, and in consultation with financial advisors and lawyers, we determined that the most viable path and best way to optimize the opportunities ahead for the company, our shareholders and our customers was to combine forces with HP.

 
We have all played a role in transforming Palm into an important player in the smartphone market once again. We have built the best mobile experience available today and a assembled a group of extremely talented and passionate employees.

 
This deal, and the high level of interest we received from other serious buyers, is a vote of confidence in our platform, our IP and our people. HP brings the necessary resources to enable us to scale Palm’s operating system, an operating system that is widely acknowledged as one of the best out there. You should view this as a positive development as we take the Company and our products to the next level.

 
We bring our platform, our IP, and our employees, and HP brings the resources we need to be #1. We are confident we will be stronger as a combined company than alone, and look forward to working over the coming months to integrate our businesses and share our vision.

 
Rest assured, we will continue to work closely with our partners and developers to expand the webOS platform and deliver quality products and services during this integration process and beyond.

 
As we work over the next three months to complete the transaction, it should be business as usual at Palm – we will all continue to work together to increase sell-through and satisfaction and strengthen our product roadmap.

 
Jon and the executive staff are committed to keeping employees up to date on significant milestones that will affect Palm employees.

 
In the meantime, if you have any questions, please see your manager.


http://investor.palm.com/secfiling.cfm?filingid=1193125-10-96901

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