HP’s Palm Purchase Could Threaten Chinese Phone Market

Hewlett-Packard’s proposed $1.2 billion acquisition of Palm does not pose an immediate threat to smartphone market leaders Apple and Research In Motion, but it could prove to be a challenge to the growing number of Chinese device makers that are gaining a foothold in the US market, say analysts.

HP likely to build smartphones and tablets

Handset device makers such as ZTE and Huawei, both of which were named by analysts as possible Palm buyers before HP’s announcement April 28, will soon find themselves competing with one of the largest technology companies in the world, and not only in the smartphone space. Palm’s webOS, considered amongst the strongest offerings in the Palm portfolio, could enable HP to make a strong bid for the tablet space, as well as to grow its enterprise offerings.

Analyst Jack Gold, with J. Gold Associates, wrote in an April 13 report that ZTE or Huawei could “leverage both the Palm brand and its technology for both domestic and international market expansion.”

After word of the HP acquisition on April 28, Gold wrote in a follow-up report:

“HP has incredible ability to get devices to consumers, so the marketing channels will dramatically aid the deployment of webOS devices. This is a preemptive strike against the ‘China, Inc.’ companies that see the US as a key market for their smart devices, not just smartphones. This gives HP the ability to fend off their competitive threat.”

And a competitive threat they’re proving to be. In the fourth quarter of 2009, ZTE jumped to the No. 5 slot for worldwide market share, following growth of 77 percent, iSuppli reported on 27 April.

Huawei, likewise, rose to seventh position, following an even more remarkable 82.4 percent growth spurt. “Together, the two Chinese companies indicate the strong momentum occurring in the emerging market as well as an increasing presence in Europe on their part with key operators,” stated the report.

RIM and Apple relatively safe

Less likely to be affected by the Palm acquisition, “at least for the foreseeable future,” wrote Gold, are RIM BlackBerry handsets and the Apple iPhone.

“They have their own user bases and market segments that are unlikely to find webOS compelling,” wrote Gold. “But HP wields a lot of power in enterprises worldwide, so there may be a long-term effect if HP can persuade organisations to move to webOS.”

Analyst Ken Hyers, with Technology Business Research, also views the acquisition as a coup to HP’s enterprise business.

“HP is an enterprise company that does have excellent channels into the enterprise,” Hyers said in an interview with eWEEK. “A glaring gap [in HP’s enterprise portfolio] is a powerful and compelling smartphone product, because a lot of enterprises are using smartphones for more than just SMS messaging and emailing, but for real productivity.”

HP’s Bradley, in a statement on the Palm acquisition, also acknowledged the criticality of the smartphone space — and HP’s need to compete in it.

“The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share,” said Bradley. “Advances in mobility are offering significant opportunities, and HP intends to be a leader in this space.”

HP included in the statement that current Palm CEO Jon Rubinstein — a former Apple employee and the man behind the Palm Pre — “is expected to remain with the company.”