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From Newsweek

Did Hewlett-Packard Pay Too Much, Too Little, or Just the Right Amount for Palm?

Is $1.2 billion a lot or a little for Hewlett-Packard to pay for Palm

With the acquisition, HP gains an instant foothold in the mobile Internet market—but it ain't much of one. Palm's webOS devices aren't exactly where it's at in the mobile space. The Pre and Pixi have been well reviewed, but they've failed to catch on in the marketplace. They haven't captured consumers' hearts like the iPhone; they haven't become an indispensable business tool like the BlackBerry; and they haven't gotten anywhere in the great big middle of the market, like Android handsets have. The Pre simply hasn't been the resurrection Palm hoped for. Only 408,000 of the company's phones were sold last quarter.

That's poor performance, until it's compared with HP's position, which was . . . none at all. The company that has pioneered so much technology is an utter nonplayer in mobile. Given that pretty much everyone agrees that mobile Internet will be bigger than the desktop Internet soon, even a small stake in the game could become a big one in the years to come.

There are two major ways in which the HP-Palm deal can work out. First, HP can reinvigorate Palm's "mindshare" among those making apps for handheld devices. As things stand today, Palm is easy to laugh off. While Apple can boast that its app store has 185,000 offerings, the Palm webOS storefront carries a pathetic 1,500 or so. What Google is doing with the Android app store may be instructive to HP. As David Pogue of The New York Times wrote last week, Google employees are reaching out to individual app makers to encourage them to write software for the platform, a tactic that is helping Android begin to close the gap on Apple. Palm can't tell developers how great it is to build for webOS with a straight face—there just aren't enough customers, and to say otherwise would be a lie. HP, though, can plausibly make the case that it will invest its considerable scale and resources into getting webOS devices into consumers' hands.

Second, HP can recognize that there is more to mobile computing than phones—and use webOS as the platform underpinning an entire range of mobile devices, from media players to tablets. Early reviews of the HP Slate, a purported iPad killer, have been disastrous, and now HP is saying that it doesn't know when the Slate will come out at all. The major problem appears to be that the gadget runs a balky touchscreen version of Windows 7, instead of something designed from the ground up for handheld operation. Well, HP is now the sudden owner of a bona fide mobile operating system. It's impossible to say if $1.2 billion is an appropriate price for a single product—but when you factor in the engineers and intellectual property behind it, the figure begins to make sense, especially if HP can persuade Palm CEO and former Apple exec Jon Rubinstein to stick around. If the Palm purchase kick-starts HP's entry into the mobile world, $1.2 billion makes sense. Just look at the strong early sales of the Apple iPad to see how eager consumers are for new kinds of products in the category. HP paid a 23 percent premium over Palm's stock price, but in after-hours trading, shares of Palm rose even higher. A billion dollars for a failed phone company with a great history struck some as too high, some as a "song," but in the final calculation it may prove just right.

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