HP pins smartphone future on ailing Palm brand

Joseph Galante and Rochelle Garner
30 Apr 2010

Growing market

Smartphones, the fastest-growing segment of the mobile phone market, are also alluring. Worldwide smartphone shipments are set to rise to 247 million units in 2010, up 36 percent from 182 million in 2009, according to ISuppli Corp.

Hewlett-Packard, based in Palo Alto, California, began marketing the iPaq after buying Compaq in 2002. Yet the devices have failed to resonate with consumers.

Last year, the iPaq accounted for 0.1 percent of the smartphone market, according to researcher IDC in Framingham, Massachusetts. At Hewlett-Packard’s handheld business, which includes smartphones and personal digital assistants, sales fell 56 percent to $25 million in the quarter that ended Jan. 31.

Palm, based in Sunnyvale, California, has made deeper inroads. Its devices surged in popularity in the 1990s and early part of the next decade, though in recent years were eclipsed by the iPhone, the BlackBerry and phones sporting Google Inc.’s Android operating system.

Losing share

By March, when Palm said its current-quarter sales would be less than half of Wall Street estimates, some analysts began questioning the company’s viability. There was speculation it may even be forced to seek Chapter 11 bankruptcy protection.

Palm’s share of the U.S. smartphone market fell to 5.4 percent in February from 9.4 percent a year earlier, according to ComScore Inc. With 42.1 percent, RIM had the largest share.

Hewlett-Packard plans to boost Palm’s annual $190 million research and development budget while spending more on sales and marketing of Palm products. The computer maker has $13 billion in cash and a 24,000-person sales force.

To succeed, Hewlett-Packard will have to attract new customers as well as software developers who can build games, tools and applications that make Palm smartphones more alluring. Many programmers are already busy creating apps for Apple, Android and RIM, said Alex Liu, a partner at A.T. Kearney, a management consulting firm. There were more than 185,000 apps for the iPhone earlier this month.


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