Signs There Is No Intelligent Life At Hewlett-Packard

Hewlett-Packard (NYSE: HPQ) will regret the day it decided to buy Palm (NASDAQ: PALM), and it will be soon.

Palm was nearly worthless when HP made its offer, and that makes the $1.2 billion it offered for the company extraordinary.

There are a few reasons that HP will look at the “strategic move” as a mistake:

1. Palm’s brand has negative equity. Many companies have brands that are worth nearly as much as their market caps. Interbrand, the top brand research firm, would make that claim about Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), and Coca Cola (NYSE: KO). The Marlboro brand is worth tens of billions of dollars to the companies that sell the cigarette–Altria (NYSE: MO) and Philip Morris (NYSE: PM). Palm has gotten as much bad press as any company in the United States when the large banks are taken out of the equation. And it launched on the Sprint (NYSE; S) network, which is a distant third to rivals AT&T (NYSE: T) and Verizon Wireless. When Verizon began to offer the Palm Pre Plus and Palm Pixi early in April, customers could get two phones for the price of one. Palm is not a dying brand; it is a dead one.

2. The rise of Google’s (NASDAQ: GOOG) Android has made the handset market so crowded that the fortunes of each manufacturer are even worse than they were a year ago. Together, Nokia (NYSE: NOK), Samsung, and LG have well over half the global cellphone sales. Research-in-Motion became one of the five largest handset manufacturers by volume in the first quarter according to IDC. The iPhone is gaining market share rapidly, and Android-based handsets are the fastest growing part of the cellphone market. There is no room for Palm. That was true when Elevation made its investment in a turnaround in Palm in June 2007. The market has become much more crowded since then.

3. RIM is not in trouble. Some experts think that Palm will target RIM’s BlackBerry. There could hardly be a more formidable competitor. RIM’s revenue for the fiscal year ended February 27, 2010 and was $14.95 billion, up 35% from $11.07 billion last year. Blackberry added about 4.9 million net new BlackBerry subscriber accounts in the most recent quarter.  At the end of the quarter, the total BlackBerry subscriber account base was more than 41 million. The BlackBerry server system is still popular with corporate IT managers who want to keep their voice and data traffic out of the “cloud.”

4. Palm’s operating system, webOS, is one of many platforms that developers have to work on to get their applications on to handsets. The number of developers who will work with operating systems beyond Apple’s, Google’s, and the Symbian 3 standard that runs many Nokia phones is limited. As Ars Technica recently pointed out:

When the Pre launched in early June of 2009, the App Catalog had only about 30 apps. In July, there still weren’t any apps, nor were there in August. Eventually, there was a trickle of apps into the store, and by the time the “beta” tag came off at the end of last year there were just about 1,000 apps on offer. One thousand apps is peanuts compared to the iPhone, which has well over 100,000 apps on offer, or Android’s 10,000+ apps.

HP wants to be a significant force in the mobile operating system and handset business and hopes to do so by buying the weakest company in the industry

If wishes were horses all the beggars would ride.

Douglas A. McIntyre