There was this monkey who once wanted to cross the busy road! One day he declared his grand intention to his family and set afoot. Having reached the road, he stepped out but was caught in the melee of the traffic. He would step ahead, step back, step aside, step around, step over, jump, shout, hop, run forward, run back… and make a monkey of himself on the road
A short story but a long similarity with one of the most respected technology companies in the world: Hewlett Packard.HP has forever been caught on transition (it seems) with no strategy or long term thought on the way forward. There are many other examples of companies and boards that have been profligate and have squandered away all investor faith and confidence: Nokia, RIM, Yahoo and more.. and HP is certainly not the worst. It has managed to erode only about 50% of its market capitalization in the last 2 years or so, which is pretty neat.
So here’s the folly list (or so i think):
1. So everyone wants to be Apple. But there aint no Apple No.2. HP failed to understand its own core proposition and went on the “ape” route.
2. Needless to say all of the HP smartphones and the touchpads found no takers. The markets already had Apple and Android to content with. If ever there was a third front, it was Microsoft.
3. Did HP’s BoD and Lee Apotheokar assume that mobile market to be simplistic enough that a Palm WebOS purchase would suffice? Ever since HP took over Palm, Palm and WebOS got more sidelined than ever.
4. After buying out Palm for 1.25 bln and the $1 bln restructuring cost booked in Q4 2010, the effort has been a drain on the resources and a massive let down for the shareholders.
5. Then came the announcement that HP is moving away from hardware business to software and consultancy focus.Many call this restructuring and I call that an IBM cloning.
6. Surprise! Surprise! Today morning newspapers report that HP actually doesnt want to sell it PC business now. About turn from stated strategic intent less than a month or so back.
7. Beat this then, when HP wants to side with Windows 8 for tablets! So Apothekar buys out Plam and WebOS and outlines a grand strategy for WebOS. Now CEO Meg Whitman does the boring and sundry and wants to get back to Windows 8.
Venturing into Mobile (and moving out), Buying WebOS (and failure to Leverage), Moving out of hardware and coming back to it. The question begs to be asked; Does the HP board know what is it that it is driving at. Or is it the monkey act in between all the chaos and confusion that tech industry always is.
HP seems to be buying a route into the mobile phone market with its purchase of Palm, but it could also plan to emulate Apple’s strategy with tablets and other media devices.
The world’s largest computer maker has now bought a foray into mobile devices with a $1.2 Billion acquisition of the beleaguered Palm. There are many views around what this acquisition means for the new entity of HP and Palm
On one end, the takeover could just involve a change from a Palm that’s struggling in the smartphone business to a Palm with the cash (and the resulting market confidence) to create a successful smartphone business. On the other hand, the acquisition could mean that HP could be more interested in owning its own operating system across phones and mobile devices (and being free of Microsoft in those areas), much like Apple. Web OS certainly holds a promise as far as HP is concerned. Yet another view is that HP needs a strong presence in mobile, but Palm doesn’t deliver that.
This acquisition is of critical importance to both Palm and HP for the synergies that it gets to the table. If HP didn’t have the right products to become a smart phone player, Palm didn’t have the money to compete with Apple and RIM in the US market and to make the brand known outside its home market. This deal takes a good operating system to the right hands and to the next level. HP’s purchase of Palm shows a clear intention to enter the consumer mobile device market. HP brings financial strength and broad reach; Palm brings a set of consumer-focused hardware, OS, application store and intellectual property. HP has made a clear commitment to invest in Palm’s technologies and has hinted at ambitious plans that go beyond smartphones. But neither Palm nor HP have a strong presence in the consumer market. Most significantly, they lack momentum around mobile application stores and a developer ecosystem. It will take time for HP to build up such an ecosystem, and it faces extremely strong competitors like Apple and Android. The consumer smartphone market moves quickly and HP will have to act fast.
In the short-term, the impact of this deal will be felt in the US market and Nokia will be one of the most affected players. When a company has a good product and the money for marketing activities, it creates a problem for its competitors. With money to invest, Palm will be able to leverage its brand, broaden its portfolio, and provide carriers with the money they need to sell devices. Money brings success if you have the right product, as Palm has. Palm’s survival no longer seems to be a problem, for the time being.
It appears that HP intends to use webOS in other device types, much as Apple has extended iPhone OS X to the iPad. However, there are still issues with awareness and applications development, which is paramount to success in the smartphone market. HP will not make Android smartphones and focus solely on webOS devices? This could prove to be a restrictive strategy in the fast growing smartphone market. Distribution is key, as Google recently learned. Traditionally, HP has a very good distribution network that will help channel to market but it will need to work closely with mobile operators, a weakness of Palm’s, in order to succeed
In an earlier post, I had discussed the crisis at Palm and the inability of the leadership to acknowledge, identify and address the crisis. So what makes Palm a good purchase for its likely suitors anyways?
Palm has to its credit a few strong assets that make it a very viable and in demand purchase. WebOS, the Palm patents and an ex-Apple talent is what drives interest in Palm. The depth and quality of a patent portfolio is somewhat correlated to the time a company has been in an industry and the extent to which it has held leadership positions, which is presumably when it might have sewn up some key patents. In fact for the WebOS, It is the devices: Pre and Pixi that is constraining the software and the device is a lot easier to fix than a poor operating systems. Just think of how long it took Palm, Apple, Google and now Microsoft to develop their new mobile operating systems; years. That’s where the interest in purchase of the Palm lies.
There are many companies that would be interested in WebOS — some obvious and some not so obvious. Probably the best way to frame the value of WebOS is to think of the size of the overall cell phone market was 1.1 billion units in 2009. If the future of the phone industry is smartphones then over time there are only going to be handful of OS’s that will prevail. WebOS has the technical pedigree to be one of those platforms. Nothing is certain, but for a number of companies it might provide the opportunity, or at least the perception of the opportunity, that they could be one a handful of platforms in this market. Sample this: There was a lot of speculation about Apple suing Palm over rivaling technologies. Yet it could not. The rational was the strength in the Palm patent Portfolio. Apple sued HTC over patent infringements instead. An unintended consequence of this lawsuit is that it potentially increases the value of Palm’s patent portfolio, and strengthens the case for them to be acquired
There is also the App Catalog to consider. With Palm’s recently released PDK they have probably the best gaming development platform after the iPhone, but again for this to get serious traction with developers they need to believe in the viability of the platform, which is unlikely as long as Palm remains independent. The case for the talent is pretty much self evident.
From an acquirer’s perspective, everyone that might be interested in Palm knows they could be very close to needing life support and waiting for the point at which they will need resuscitation could be very costly. They also know that there has got to be more than one other party interested in acquiring Palm so they can’t sit simply bide their time before they make a bid, lest they lose the company to another bidder. (A case in point is Admob on who Apple dawdled for a while only to see it acquired by Google and Apple ultimately had to take a second choice option). Then there is the time to market issue. There are quite a few OS’s in development and Android and the iPhone are leaping ahead; no buyer has the luxury of sitting back to wait and see how things play out if they want to compete.
Palm is sinking… if stats had their way. However, the CEO and Chairman refuses to accept the facts on his face.
Palm is sinking and from the looks, it doesnot look like it has more than 12 months left to it. The “white knights” if any are few and far between. Palm reported quarterly revenue $350 million earnings with a net loss of $18.5 million; sending the stock on another nosedive to around $4.These results are after adopting the new accounting rules that let certain companies accelerate revenue recognition.
One reason for Apple’s bang-up last quarter was the accounting rules change. All it did for Palm was to keep things from looking even more dismal. The cash-on-hand picture will only get worse.Out of the 960,000 units that Palm moved into distribution, only 408,000 actually sold through to customers.
The biggest issue that puts them in play right now is the cash burn-rate of the company and their current valuation; the market cap is around $667 million. Sales are expected to plummet next quarter as carriers work off excess inventory and while the company has a $600 million cash cushion, this is likely to vaporize quickly as sales dry up.The company is expecting less than $150 million in sales this quarter; a huge drop from the $349 million in the prior quarter. This is mostly related to the excess inventory that the carriers are holding, but this is scant relief, because the whole problem is end demand and no reduction in inventories is going to fix that. The other issue weighing on their cash balance is their huge accounts payable balance of $190 million (almost 2x its receivables), which will also burn through a lot of cash this quarter
The next quarter revenue estimate is expected to be lesser than $150 million.
Whats more worse than a sinking ship? To complicate matters further for the beleaguered Palm, its management doesnot seem to see the obvious. Heres what Jon Rubinstein had to say about Palm’s problems at hand:
“Our recent underperformance has been very disappointing, but the potential for Palm remains strong.The work we’re doing to improve sales is having an impact, we’re making great progress on future products, and we’re looking forward to upcoming launches with new carrier partners. Most importantly, we have built a unique and highly differentiated platform in webOS, which will provide us with a considerable – and growing – advantage as we move forward.”
The announcement of Palm and Pre for AT&T is a positive, but with competition from Nexus One and iPhone 4G, one would be cautious about nets on Palm and Pre. WebOS was supposed to be a silver bullet, but it isn’t, because consumers simply don’t want to buy Palm’s products. Current products have been eclipsed in hardware terms and new competitor hardware is on the horizon. No amount of marketing is going to make the products sell well against the coming competition.
The recovery from a crisis begins with the identification of the problem and there-after the solution. The way it looks for Palm, they have not yet defined their problem in the first place. Forget looking for solutions.
Two years ago, the iPhone blew away expectations for what mobile devices are capable of. Apple has the opportunity to do in mobile smartphones what Microsoft did on the desktop: Own the standard platform upon which every popular application is based. The irony of this cannot be lost on Microsoft, which has flubbed its own opportunity to do the same.And mobile devices and applications are the future of the computing industry
As the App Store has matured, so has the need to come up with more sophisticated ways to profit from it. Simply having a great application is not enough. The App Store’s success — as much a surprise to Apple as it has been to competitors — has given rise to a new digital ecosystem. Today, hundreds of software aspirants, from individuals tinkering in their bedrooms late at night to established companies looking for lucrative new revenue streams, are jumping into the App Store fray.And smart-phone manufacturers across the board are trying to make their platforms more attractive and lucrative to bring in the kind of creativity and enthusiasm that Apple has.
However the question increasingly being asked by analysts world-over is “Is it about 20,000 apps or 200,000 apps or is it about changing those 20,000 apps and their deep integration and how they interrelate to one another?” With Apple adding the numbers up briskly, the view about Apps is now beginning to shift. Palm and Research in Motion, say they don’t need an avalanche of applications to compete.
It is much more interesting to change the applications and changing the user experience and really unlocking the promise and the money and revenue opportunity for the ecosystem. Thus the story is changing from too many apps to a limited number of meaningful apps: Apps which integrate into the user’s activities and lives and are used as a necessity.
Most phones will end up being smart-phones. There will be more services and new ways to monetize and more consumption. Growth is a given; it’s just a question of who is going to innovate in the right way to drive that value proposition to capture that growth.
Microsoft, which analysts have criticized for its sluggish approach to the smartphone market, also says it is emphasizing quality for the application store it introduced in October, Windows Marketplace for Mobile.“Our strategy is to look holistically at how we can provide the best all-around user experience,” says Victoria Grady, director of mobile strategy at Microsoft. The Marketplace now has more than 800 apps.
Many developers and analysts think Google’s mobile operating system, most recently placed in the Motorola Droid, may evolve into the fiercest competitor to the iPhone.
Android unique applications are no longer limited to a single device. The growing number of Android-powered phones available on multiple wireless carriers increases the financial opportunity for developers. An year back, Android just had 1 handset which has now increase to close to dozen. Android volumes are going up at a tremendous pace, and the developer ecosystem is seeing that.
Unlike Apple, Google has eschewed a review process, allowing any developer to publish an application to the Android Marketplace, its version of the App Store, instantly. About 14,000 applications are available for Android-powered smartphones.
Apple has another strong advantage: the iPhone offers developers a uniform, standard platform. When, a developer creates an application for the iPhone, he knows how it’s going to run exactly as you tested it on every single model. The same isn’t true for the rest of the smartphones, which have varying screen sizes, processor speeds and form factors.
HOWEVER the competitive landscape shapes up, the App Store phenomenon shows no signs of slowing. IDC, a technology research firm, predicts that the number of iPhone apps will triple next year, fueled by the growing popularity of smartphones and other mobile devices. Along the way, analysts say, the App Store will continue to upend the architecture of the smartphone business and threaten competitors that don’t have vibrant and extensive offerings.
This changes the way the smartphone industry operates. Each handset company would come up with its latest iterations and maybe have the hottest device of the season or not. With apps in the equation, all that changes. It goes from being a product cycle game to a platform game.
The April – June 2009 quarter results for Apple and Nokia are the literal “study in contrasts”!
The numbers do justice to the sentiment towards both these companies at this time. Apple is clearly shinning bright and is the toast of the bourses.
Ref: http://online.wsj.com/article/SB124821056118269783.html; http://www.apple.com/pr/library/2009/07/21results.html; http://online.wsj.com/article/SB124820913514969595.html; http://industry.bnet.com/technology/10002677/can-anyone-out-app-apple/
Even the staunchest critic would not count out Nokia but it surely seems that Nokia has lost its way in the Smartphone race and needs to retrospect its strategies and approach to user experience. N 97, which was being touted as the most advanced multimedia computer has failed to impress and unless, one is die hard Symbian S60 fan, there is very little reason one would opt for the N 97. With no other significant touch screens from Nokia at the moment, there is nothing that customers and investors are looking forward to from Nokia. http://gizmodo.com/5308440/nokia-n97-review-nokia-is-doomed
The rumour mills are running abuzz with the theory that Nokia would do well to acquire Palm because palm offers Nokia all that it really needs desperately at this point of time. http://www.ubergizmo.com/15/archives/2007/03/nokia_possibly_interested_in_palm.html
Even LG, which doesnot feature as a serious contender in the smartphone business seems to be getting its acts right in that market. http://www.forbes.com/2009/07/22/lg-nokia-sony-markets-equity-technology.html?partner=msn
Nokia seems to be walking the path of Motorola 3 years back. http://www.forbes.com/2009/07/17/nokia-apple-iphone-markets-equity-mobile.html?feed=rss_technology
It’s been a heck of a ride for Apple investors. The stock, which has nearly doubled so far this year and over the past five years the stock has gained an average of 56% a year, an extraordinary achievement. It cannot keep its supply commitments for iPhone. It has already sold 7 times the number of iPhones this year as it did last year. In a extremely competitive smartphone market, Apple is using all its legs to score above the competition: Its Device, the software/UI/Browser and the Applications! Interesting to see how Apple would get the most of this now…