Explore HP's acquisition of Palm Essay



Hewlett-Packard was considered a top company in the engineering industry at the start of 2010. They were ranked 35 on Forbes magazine’s 2009 Global 2000 list, above companies such as Microsoft ( 49 ) and Apple ( 75 ) . Their border came from the figure of engineerings and services that they offered to their clients. Since they were already a large name in personal computer science and were doing their manner into the smartphone market, begin work on a tablet seemed like a logical measure. As they started development of their TouchPad, they realized that holding their ain operating system would do more concern sense than licencing one from Microsoft.

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First, it would put them apart in the market. Rather than merely be another Microsoft tablet, they could individual themselves out through their individualised platform. They besides wanted to be able to supply full support to clients, instead than mention them two different topographic points depending on if the package or hardware was the issue. Finally, they believed that their merchandise would be stronger if the same applied scientists created the full merchandise. It is hypothesized that this program came from watching Apple’s success as they launched the iPad utilizing a really similar expression. They even went so far as to hold a similar design and monetary value to the iPad, which was unveiled in early 2010.

On April 28, 2010, HP’s CEO Jon Rubenstein announced their determination to get Palm. The chief ground for this was Palm’s webOS package, an operating system for nomadic devices based on the package used for the Palm Pilot. Their hope was to develop it further to work with the TouchPad to make a genuinely alone device. The constructs behind webOS were in front of their clip ; it was one of the first web based runing systems and had multitasking abilities that many other tablet did non.

Palm was besides of value to HP because they already had a clasp on the nomadic engineering market. For old ages, the Palm Pilot and the BlackBerry were the two taking nomadic devices. Apple was the first company to let go of true competition into the market, giving HP yet another ground to try to follow in their footfalls. Due to Palm’s early lead in the market, they had 100s of patents related to phones, tablets, and package that would be of usage to HP on top of the already developed webOS package.

As it turned out, HP purchased Palm for $ 1.2 billion in hard currency. The single stockholders were paid $ 5.70 per portion, which was 23 % of Palm’s stock monetary value the twenty-four hours before the acquisition. Palm had announced on April 12 of that same twelvemonth that they were looking for a purchaser, and HP was the first to seize with teeth. On that day of the month, Palm was estimated to hold a $ 870.8 million value. Most of this appraised value came from their rational belongings and nomadic package. Clearly HP saw this possible and decided to leap on the chance before other could recognize it every bit good.

Acquisition and Goodwill

In July 2010, HP acquired the nomadic device company Palm for $ 1.8 billion dollars, including $ 5.70 hard currency paid per portion for Palm common stock, a 23 % premium on what the stock was deserving harmonizing to Wall Street, as Hewlett-Packard had sought out Palm as an acquisition mark chiefly for its tablet platform, Web OS. HP believed that its repute for computing machine merchandises and fiscal strength combined with “Palm ‘s alone webOS platform” ( quoted from HP investor dealingss statement, April 28, 2010 ) .

Of the $ 1.8 billion dollar acquisition, $ 879 million was attributed to goodwill, $ 344 million in intangible assets, and $ 80 million in rational belongings, research and development. At the acquisition day of the month, Palm had an estimated value of $ 1.4 billion in patents and other rational belongings, numbering 452 patents and 405 applications pending. In entire, the built-in value of Palm was based on two things: the Palm name and the webOS package.

By 2010, HP began to see how much they had overvalued Palm’s Web IOS platform. In HP’s 2011 one-year fiscal statements, $ 72 million of damage was attributed to Web OS, and this was merely the beginning. In the autumn of 2011, HP would impair another $ 873 million dollars, basically composing off the acquisition all together.

. Prior to the acquisition, Palm was in serious problem. By March, the stock was already down 19 % for the twelvemonth, selling at a depression of $ 4.59 per portion. It was fighting to do a dent in the market with nomadic industries such as Apple and Samsung ruling the nomadic devise market, Palm was about disused. Analysts following Palm had estimated Palm’s stock falling every bit low as $ 0 per portion. While analysts had labeled Palm basically worthless, Hewlett-Packard estimated a value of $ 1.8 billion dollars. HP had seen something in Palm that the remainder of the universe did non see, possibly because it merely did non be.

In the old ages following the acquisition of Palm, HP would be capable to the damage of $ 885 million. There are many grounds for this monolithic damage, nevertheless the Web IOS package failure can be attributed to the bulk of the write-down. While the Web IOS platform was the chief mark in the acquisition and a big cost driver, it would turn out to be a monolithic letdown. One article by CNN accurately called it, “How to Waste a Billion Dollars” .

WebOS was important in HP’s program to plunge into the tablet and nomadic calculating concern, as it tried to vie with Apple, who pioneer the tablet market. HP and Palm were in a haste to develop and market their webOS based tablet, the TouchPad. While it had hoped to establish into shops by the vacation season, the TouchPad didn’t make its manner into shops until July, 2011. And about instantly, it was a failure. Within six hebdomads, it was discontinued and staying stock list sold at an awkward monetary value. It would go a gag among employees. Many errors attributed to the failure of the TouchPad. First, the merchandise itself was made with “cast-off cull iPad parts” , as quoted by an HP employee, discoursing its deficiency of quality compared to its competition. Second, the tablet was released with a subpar version of webOS that was slow and prone to clangs, while it could hold waited a few months for a more functional version. Last, HP refused to subsidise the monetary value of the TouchPad, which would take down the monetary value from $ 499 to $ 199. Retailers, like Best Buy, expected successful gross revenues, as HP’s repute as a computing machine giant released its first tablet. However, stock list started stacking up in stock rooms so much so that Best Buy had to direct back much of its stock list to HP and cancel hereafter cargos. The few tablets that were sold at that premium monetary value point were returned within a few hebdomads of purchase. At its release, the TouchPad was viing with the iPad 2, a well-established merchandise with a repute for superior quality. It all comes down to HP let go ofing a subpar merchandise at a premium monetary value.

With the fail of the HP’s launch into the tablet market, it was clear that there was no usage or value in the webOS package, and by extension Palm. The whole ground for the $ 1.8 billion acquisition was the package by which HP would vie in the tablet market was a failure. It became known as the clip HP wasted a billion dollars. By November 2011, HP was get downing to recognize what analysts and investors knew all along, Palm was basically worthless, with its lone feasible plus, webOS rendering itself worthless every bit good. HP one time once more had to compose off a monolithic good will damage due to its acquisition of Palm and its extremely overvalued platform. On August 18, 2011, HP’s CEO Meg Whitman officially announced its program to wind-down the webOS concern, and “generously donate” webOS to the open-source community. In November 2011, HP issued an 8-K to write-down an $ 885 million damage, with $ 813 million attributed to goodwill damage, to the Palm acquisition, associating to the wind-down of the webOS package.

HP’s black acquisition of Palm, Inc. continued their downward spiral of bad determinations that hurt the company as a whole. The failure of Palm and webOS besides led up to a much larger failure a twelvemonth subsequently. Much like their purchase of Autonomy, this represented a instance of hapless decision-making and an inability to maintain up with their competition. The acquisition of Autonomy in 2011 would turn out to be the acquisition of Palm times ten. HP acquired Autonomy for $ 11.7 billion and within a twelvemonth wrote off $ 8.8 billion in good will damage. To cite Einstein, “the definition of stupidity is making the same thing over once more and anticipating different results” , and this is precisely what HP was guilty of making. Palm may hold one time been an industry giant but their clip at the top was long over. Despite this HP President and CEO Leo Apotheker said in their 2010 Annual Report “With the acquisition of Palm, Inc. , we added the most modern operating system in the market, positioning HP to drive invention into the aggressive country of connected mobility.” If they were trusting on the purchase of Palm to travel the company in a new way they would be greatly mistaken. Many would inquire if the CEO was obviously lying to its investors, or merely that naive.

Palm’s webOS package was one of the chief constituents of the company that made it so desirable to HP. It was supposed to give their TouchPad an advantage over rivals, such as the iPad, by being more flexible. This would be accomplished by them being in control of both the package and hardware of their merchandises. By this clip it was evident that tablet computing machines and smartphones were traveling to be large concern and HP was wagering to a great extent that geting this package from Palm would place them to acquire a larger piece of this progressively profitable concern. The Touchpad that HP was trusting so to a great extent on to maintain them relevant was pulled off the market after a mere seven hebdomads.

Poor determinations over the last several old ages had led to turnover at the top for HP. Carly Fiorina’s term of office as CEO was cut short when her purchase of computing machine maker Compaq failed to bring forth net incomes for the company in 2002. After her, Mark Hurd was responsible for a figure of large trades, the acquisition of Palm being one of them in 2010, and he excessively departed after doing hapless determinations and aggressive cost film editing. His replacing, Leo Apotheker, didn’t even last a whole twelvemonth on the occupation, but in that clip he realized his predecessors’ error and gave up on HP’s webOS fiasco. Now it’s Meg Whitman’s clip to turn around the company. All of these failed trades have led to high turnover at the top and have badly hurt the company’s credibleness with investors.

Other Issues at HP

During the clip of the acquisition of Palm, Hewlett-Packard’s direction was really focused on acquisitions. Although they did develop some merchandises and package on their ain, they preferred to buy companies that already had a head start on the engineering and use it to their concern scheme. This was likely due to the fact that HP was already behind the competition in the smartphone and tablet markets ; they did non desire to blow resources on dearly-won and time-consuming research and development undertakings when they had the possibility of buying a near-complete merchandise. Management, hence, moved rapidly into each acquisition without needfully making the proper due diligence. Paul Mercer, the senior manager of package at Palm, claimed that webOS was non ready for the market, saying, “Perhaps it ne’er could hold been executed because the engineering wasn’t at that place yet.” The senior package applied scientist did non believe it could make the capablenesss HP was looking for, and yet they went through with the trade. This is particularly unreassuring when it comes clip to value the acquisition. Although HP uses 3rd party assessment houses, those valuators take into history the premises and estimates that direction used when geting the company. They even province that these premises are “inherently uncertain.” Looking back after the damage was taken, it is clear that HP and their valuators believed Palm would be much more valuable to the company than it really was.

Not merely did Palm’s engineering non run into the ends HP set, but a twelvemonth subsequently they had a similar job with their acquisition of Autonomy. They purchased Autonomy because they planned to travel into informations analysis after their failure in the tablet market. Similar to the Palm acquisition, HP one time once more did non make its due diligence. A rival in the market, Oracle, had looked at Autonomy but decided against geting it because they did non believe it had adequate value. This should hold been a ruddy flag to HP that the acquisition was non in their best involvement, but HP went through with it and later had to write-down another big impairment loss. HP claimed in their 2011 fiscal statements, nevertheless, that they “have been doing focussed investings to beef up our portfolio of merchandises and services that we can offer to our customers.”

Although they claim to be doing focussed investings, other parts of their fiscal informations seem to differ. In the decennary before their acquisition of Palm, HP acquired over 40 other companies, across all of their concern sections, and covering many different types of engineerings. In add-on, upon reading the direction treatment and analysis subdivision of the fiscal statements, you see that their concern focal point is quite broad: “We are a taking planetary supplier of merchandises, engineerings, package, solutions, and services to single consumers, small- and moderate-sized concerns, and big endeavors, including clients, the authorities, wellness and instruction sectors.” It seems that HP provides every type of engineering to any client willing to purchase. They claim to be concentrating their concern and their acquisitions without really taking a individual section or engineering to concentrate on. Without a focal point, it is difficult for them to be certain that each merchandise is acquiring the proper attention and energy needed to do it competitory in the market.

Because they had such a assortment of merchandises, it was difficult for HP to pay attending to what was go oning in the markets for each merchandise. Management focused strictly on developing their merchandise and didn’t wage attending to what the remainder of the market was making. The TouchPad and webOS were both at least a coevals behind the competitory tablets in the market. In the engineering market, you have to be the biggest, best, and newest to acquire attending ; being mediocre will non acquire you really far. HP besides did non work with 3rd party developers to make applications for webOS, which meant that there was far less value in having a TouchPad than any other tablet. Palm was besides already behind the market when it came to portable devices. Although they had antecedently been a top rival, back when the Palm Pilot and Blackberry were the major devices, they had since fallen behind. Apple and Android had taken over the market, and HP would hold been smarter to fall in forces with one of them, most likely Andriod. Even Palm as a company was cognizant of this. Paul Mercer stated that, “Palm was in front of its clip in seeking to construct a phone package platform utilizing Web engineering, and we merely weren’t able to put to death such an ambitious and breakthrough design.” If HP had paid more attending to the market, they may hold realized this before blowing a billion dollars on a worthless company.

Conclusion Ideas

Although HP was already a taking company in engineering, they could experience others crawling up on them. The TouchPad was their solution: if they could set a tablet on the market that compete with or crush Apple’s iPad, so they could derive back their market portion. They were willing to pass one million millions of dollars if it meant maintaining that market portion.

Forbes magazine figure alterations

Go through 2nd paragraph of presentation and state why each didn’t work out for them.

hypertext transfer protocol: //www.theverge.com/2012/6/5/3062611/palm-webos-hp-inside-story-pre-postmortem

hypertext transfer protocol: //www.fool.com/investing/general/2012/11/20/hewlett-packards-inevitable-impairment.aspx

hypertext transfer protocol: //h30261.www3.hp.com/phoenix.zhtml? c=71087 & A ; p=irol-newsarticle & A ; ID=1760639

hypertext transfer protocol: //h30261.www3.hp.com/phoenix.zhtml? c=71087 & A ; p=irol-newsArticle & A ; ID=1419424

hypertext transfer protocol: //money.cnn.com/2010/03/19/technology/palm_target_price_zero/

hypertext transfer protocol: //www.dailyfinance.com/2011/11/22/hp-writes-down-nearly-17b-in-losses-on-palm-invest/

hypertext transfer protocol: //www.tomshardware.com/news/hewlett-packard-palm-pre-phone-webos,10325.html

[ 1 ] hypertext transfer protocol: //www.sec.gov/Archives/edgar/data/47217/000110465910022576/a10-8994_1ex99d1.htm


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