HP’s Latest Cuts: Will It Be Any Different This Time?

If you were to interpret this list of acquisitions by Hewlett-Packard as a past-performance chart, and focused particularly on recent transactions running from the summer of 2008 through to the present, you might reasonably conclude that HP has spent its money unwisely.

That’s particularly true if you correlate the list of transactions with the financial results that followed. Admittedly, some acquisitions have performed better than others, but arguably the worst frights in this house of M&A horrors have been delivered by the most costly buys.

M&A House of Horrors

As Exhibit A, I cite the acquisition of EDS, which cost HP nearly $14 billion. As a series of subsequent staff cuts and reorganizations illustrate, the acquisition has not gone according to plan. At least one report suggested that HP, which just announced that it will shed about 27,000 employees during the next two years, will make about half its forthcoming personnel cuts in HP Enterprise Services, constituted by what was formerly known as EDS. Rather than building on EDS, HP seems to be shrinking the asset systematically.

The 2011 acquisition of Autonomy, which cost HP nearly $11 billion, seems destined for ignominy, too. HP described its latest financial results from Autonomy as “disappointing,” and though HP says it still has high hopes for the company’s software and the revenue it might derive from it, many senior executives at Autonomy and a large number of its software developers already have decamped. There’s a reasonable likelihood that HP is putting lipstick on a slovenly pig when it tries to put the best face on its prodigious investment in Autonomy.

Taken together, HP wagered a nominal $25 billion on EDS and Autonomy. In reality, it has spent more than that when one considers the additional operational expenses involved in integrating and (mis)managing those assets.

Still Haven’t Found What They’re Looking For

Then there was the Palm acquisition, which involved HP shelling out $1.2 billion to Bono and friends. By the time the sorry Palm saga ended, nobody at HP was covered in glory. It was an unmitigated disaster, marked by strategic reversals and tactical blunders.

I also would argue that HP has not gotten full value from its 3Com purchase. HP bought 3Com for about $2.7 billion, and many expected the acquisition to help HP become a viable threat to Cisco in enterprise networking. Initially, HP made some market-share gains with 3Com in the fold, but those advances have stalled, as Cisco CEO John Chambers recently chortled.

It is baffling to many, your humble scribe included, that HP has not properly consolidated its networking assets — HP ProCurve, 3Com outside China, and H3C in China. Even to this day, the three groups do not work together as closely as they should. H3C in China apparently regards itself as an autonomous subsidiary rather than an integrated part of HP’s networking business.

Meanwhile,  HP runs two networking operating systems (NOS) across its gear. HP justifies its dual-NOS strategy by asserting that it doesn’t want to alienate its installed base of customers, but there should be a way to manage a transition toward a unified code base. There should also be a way for all the gear to be managed by the same software. In sum, there should be a way for HP to get better results from its investments in networking technologies.

Too Many Missteps

As for some of HP’s other acquisitions during the last few years, it overpaid for 3PAR in a game of strategic-bidding chicken against Dell, though it seems to have wrung some value from its relatively modest purchase of LeftHand Networks. The jury is still out on HP’s $1.5-billion acquisition of ArcSight and its security-related technologies.

One could argue that the rationales behind the acquisitions of at least some of those companies weren’t terrible, but that the execution — the integration and assimilation — is where HP comes up short. The result, however, is the same: HP has gotten poor returns on its recent M&A investments, especially those represented by the largest transactions.

The point of this post is that we have to put the latest announcement about significant employee cuts at HP into a larger context of HP’s ongoing strategic missteps. Nobody said life is fair, but nonetheless it seems clear that HP employees are paying for the sins of their corporate chieftains in the executive suites and in the company’s notoriously fractious boardroom.

Until HP decides what it wants to be when it grows up, the problems are sure to continue. This latest in a long line of employee culling will not magically restore HP’s fortunes, though the bleating of sheep-like analysts might lead you to think otherwise. (Most market analysts, and the public markets that respond to them, embrace personnel cuts at companies they cover, nominally because the staff reductions result in near-term cost savings. However, companies with bad strategies can slash their way to diminutive irrelevance.)

Different This Time? 

Two analysts refused to read from the knee-jerk script that says these latest cuts necessarily position HP for better times ahead. Baird and Co. analyst Jason Noland was troubled by the drawn-out timeframe for the latest job cuts, which he described as “disheartening” and suggested would put a “cloud over morale.” Noland showed a respect for history and a good memory, saying that it is uncertain whether these layoffs would bolster the company’s fortunes any more than previous sackings had done.

Quoting from a story first published by the San Jose Mercury News:

In June 2010, HP announced it was cutting about 9,000 positions “over a multiyear period to reinvest for future growth.” Two years earlier, it disclosed a “restructuring program” to eliminate 24,600 employees over three years. And in 2005, it said it was cutting 14,500 workers over the next year and a half.

Rot Must Stop

If you are good with sums, you’ll find that HP has announced more than 48,000 job cuts from 2005 through 2010. And now another 27,000 over the next two years. But this time, we are told, it will be different.

Noland isn’t the only analyst unmoved by that argument. Deutsche Bank analysts countered that past layoffs “have done little to improve HP’s competitive position or reduce its reliance on declining or troubled businesses.” To HP’s assertion that cost savings from these cuts would be invested in growth initiatives such as cloud computing, security technology, and data analytics, Deutsche’s analysts retorted that HP “has been restructuring for the past decade.”

Unfortunately, it hasn’t only been restructuring. HP also has been an acquisitive spendthrift, investing and operating like a drunken, peyote-slathered sailor.  The situation must change. The people who run HP need to formulate and execute a coherent strategy this time so that other stakeholders, including those who still work for the company, don’t have to pay for their sins.

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Cisco and RIM: Hard Times, Different Situations

A morbid debate has ensued as to whether Cisco or RIM is in worse shape. It’s an unseemly discourse, but it seems obvious to me that Cisco, regardless of its current woes, remains in a better, stronger position than RIM, both today and well into the future.

That said, let me be absolutely clear that I believe Cisco has entered a period of decline, perhaps of the irrevocable sort. The broad industry trends — commoditized wiring-closet switches, stiff competition in the data center and the network core, the rise of cloud computing, and so forth — are not its friends. To make matters worse, Cisco is suffering from its own imperial overstretch, and from a cultural malaise that afflicts and challenges all big corporations that reach a certain stage of maturity.

Not the Same

This Cisco, the one you see today, is not the one that ruled the networking industry late in the last century and early in this one. That beast, which seemed so unstoppable on its path to dominance — capturing and keeping customers, charming partners,  drawing prospective suppliers, and dazzling industry analysts — seems to have left the building. It has the same head, figuratively and literally, but it’s uncoordinated now and tends to get in its own way at least as often as it bulldozes the competition.

Even so, Cisco is a long way from dead. It has a prodigious installed base of customers, some major partnerships that still matter, and a chance to step back, reflect on what’s happening in the market, and alter course accordingly. It won’t be easy — some believe Cisco’s leadership is better at building than fixing  — but Cisco need not slide into an industry abyss.

RIM, too, has an opportunity for renewal, but its situation is far more daunting. As with Cisco, the trends — an app-driven market dynamic; consumerization of IT and “bring your own device” (BYOD) to work; the strength of Apple at the high end of the smartphone market, Google Android nearly everywhere else, and low-cost competitors in the developing world; the rise of mobile-device-management (MDM) suites that can support heterogeneous mobile platforms — are not in its favor. Also like Cisco, RIM has lost its way, failing to recognize foreboding trends and lethal competitors until serious damage had been done.

Bigger Challenges, Fewer Resources

Still, RIM is worse off in many respects. First, it’s no longer an industry leader. It’s been usurped by Google’s Android and by Apple in smartphones, and there’s a danger that Microsoft, and perhaps even HP, could knock it further down the charts. Cisco, notwithstanding its current hardships, doesn’t have that problem; it’s still number one in enterprise networking (switching and routing), though competitors are chipping away at its market share and it has lost ground in other important, faster-growing markets, such as the application delivery controller (ADC) space, where F5 leads.

Furthermore, Cisco still has customers that will buy into the brand and the higher prices that accompany it. That could change — nearly everything can change — but Cisco retains that benefit today. There might fewer of those customers than there were a couple years ago, but the population of Ciscotown remains considerable. Unfortunately for RIM, the brand-equity die has been cast, and it has suffered a decline not only in the eyes of consumers but in many enterprises as well. Apple iPhones and iPads are proliferating in enterprise settings and vertical markets, often supplanting BlackBerry devices, at a rate few predicted.

RIM also has fewer resources than Cisco. True, it’s fighting competitive battles on fewer fronts than the networking giant, but Cisco has the option of reining in its aspirations and allocating its ample resources with greater strategic focus. RIM can only do so much.

Mitigate Risk or Roll Dice?

It’s ironic that, just a short time ago, some analysts and pundits were suggesting that Cisco buy RIM. My point is not to mock them — this industry will humble anybody who tries to predict its course — but to illustrate just how much a combination of strategic missteps and the vagaries of fate can change the game in relatively short order.

The best anybody out there can do is to find a balance between risk mitigation and success probability, which often (but not always) are closely interrelated. Sometimes, though, you need to take a big risk to qualify for a big reward.

Cisco can still play some risk-mitigation cards, while RIM needs to roll the dice.

HP’s TouchPad: Ground to Make Up, but Still in Race

After I wrote my last post about the limited commercial horizons of Cisco’s Cius tablet, I was asked to comment on the prospects for HP’s webOS-based TouchPad.

A Tale of Two Tablets

Like Cisco’s Cius, the TouchPad made its market debut this month, a few weeks ahead of its Cisco counterpart. The two tablets also have an enterprise orientation in common. Moreover, like Cisco’s Cius, the TouchPad was greeted with ambivalent early reviews. Actually, I suppose the early reviews for the TouchPad, while not glowing, were warmer than the tepid-to-icy responses occasioned by Cisco’s Cius.

There are other differences between the two tablets. For one, HP’s TouchPad sports its own mobile operating system, whereas Cisco has chosen to ride Google’s Android. There’s nothing wrong with Cisco’s choice, per se, but HP, in buying Palm and its webOS, has a deeper commitment to making its mobile-device strategy work.

As we’ve learned, Cisco is casting the Cius as an entry point — just one more conduit and access device — to its collaboration ecosystem as represented by the likes of WebEx and its Telepresence offerings.

Different Aspirations and Objectives

Put another way, HP clearly sees itself as a player in the tablet wars, while, for Cisco, tablets are incidental, a tactical means to a strategic end, represented by greater adoption of bandwidth-sucking collaboration suites and videoconferencing systems by enterprises worldwide. Consequently, it would come as no surprise to see Cisco bail on the tablet market before the end of this year, but it would come as a genuine shock if HP threw in the towel on webOS (and its associated devices) during the same timeframe.

That won’t happen, of course. HP believes it can carve out a niche for itself as a mobile-device purveyor for enterprise customers. To accomplish that goal, HP will port webOS to PCs and printers as well as to a growing family of tablets and smartphones. It also will license webOS to other vendors of tablets and smartphones — and perhaps to other vendors of PCs, too, presuming such demand materializes. Cisco doesn’t have an OS in the mobile race, so it doesn’t have those sorts of aspirations.

Multiple Devices, Bundling, and Services

Another difference is that HP actually knows how to make money selling client devices with more than a modicum of consumer appeal. That’s still uncharted territory for Cisco. In a period in which “consumerization of IT” is much more than a buzz phrase, it helps that HP has some consumer chops, just as it hurts that Cisco does not. Presuming that HP can generate demand from end users — maybe that’s why it is using the decidedly non-corporate Russell Brand as its TouchPad pitchman — it can then use bundling of webOS-based tablets, smartphones, printers, and PCs to captivate enterprise IT departments.

To top it all off, HP can wrap up the whole package with extensive consulting and integration services.

I’m not saying HP is destined for greatness in the tablet derby — the company will have to persevere and work hard to address perceived weaknesses and to amass application support from the developer community — but I’d wager that HP is better constituted than Cisco to stay the course.

Why Microsoft Might Finally Acquire RIM

In the past, I have argued that a Microsoft acquisition of Research in Motion (RIM) was unlikely and unwise. Still, stuff happens in the space-time continuum — circumstances change, new dynamics come into play — that cause one to revisit earlier assumptions and to reconsider possible outcomes.

Such is the case for my thoughts about a union between Microsoft and RIM. I no longer view it as an unlikely scenario. Considering what has been happening in the industry, and in light of the daunting challenges Microsoft and RIM face in the mobile marketplace, a marriage of convenience, if not one of amorous intent, could be in the cards.

Let’s first consider Microsoft’s circumstances. The company has failed utterly and repeatedly in its bid to establish a dominant mobile platform. Its smartphone licensees are defecting in droves, running into the welcoming arms of Google’s Android proselytizers.

Microsoft’s share of the smartphone operating-system market is plummeting like sales of The Knack’s follow-up albums. Microsoft’s latest silver bullet in this market is called Windows Phone 7, but a technical preview of that software, now undergoing lab testing at wireless operators, suggests Microsoft hasn’t cracked the code. A consensus is building that Windows Phone 7 is several years too late and several hundred-hundred million dollars short of where it needs to be.

At the same time, Microsoft might be coming to the grim realization that it isn’t the consumer-electronics behemoth it sees when it looks into the Redmond funhouse mirror. Microsoft’s perception of itself, as a company that actually understands and intuitively anticipates the desires of consumers, has been unmasked as abject delusion.

Fortunately, Microsoft might be gradually coming around to reality, recognizing that it must play to its strengths, not to its weaknesses. Its strengths are in enterprise markets, from SMBs upward. That  has been increasingly obvious to many people, except to certain denizens of Microsoft’s boardroom and to a few habitues of its executive suites.

Regrettably, though, Microsoft’s mobile offerings for the enterprise, even in terms of integration with its own server-based products, are sorely lacking in nearly every respect. Microsoft has failed at mobile, and it has disregarded one of its key constituencies in the process.

Meanwhile, we have RIM. Despite not having quite the corporate breadth of, let’s say, Nokia, RIM has the benefit of market focus and an established enterprise franchise that won’t vanish overnight. RIM could remain independent and stay the course. It could retain a solid core of its enterprise customer base — especially in certain vertical markets that require the centralized control, compliance, security, and back-end integration that BlackBerry products and technologies provide — but it will see some market-share erosion at the hands of Google’s Android and even Apple’s iPhone.  If RIM had more resources at its disposal, it might be able mitigate that erosion, if not stop it.

RIM might not want to entertain a union with Microsoft — scuttlebutt suggests it has resisted Microsoft’s entreaties before — but it might be more amenable to considering a compelling proposal now. Watching what’s happening to Nokia — a death of a thousand cuts amid a river of piranha, after losing its strategic bearings in a predatory jungle — cannot be edifying viewing for the chieftains at RIM. At one time, Nokia had acquisitive interest in RIM, and now Nokia is fighting, apparently without success, to remain relevant.

To be sure, RIM would not accept just any Microsoft offer. Maybe now, though, it  would not slam the door on the right offer. What might that be, though, and would Microsoft be willing to entertain it?

With more than $37 billion (and counting) in cash reserves, Microsoft has the means at tis disposal to pull off a RIM purchase involving a combination of cash and stock. RIM now has a market capitalization of $29.58 billion. Microsoft would have to pay a premium of at least 30 percent, probably more, to complete a deal. A $40-billion offer, with the right inducements, might suffice.

Clearly, that’s a lot of coin. We’re not talking about a simple, low-cost tuck-in acquisition with a modest risk profile. This would be a big deal, larger than any acquisition Microsoft has done. Until now, Microsoft’s biggest deal involved aQuantive, an online-marketing concern it bought for more than $6 billion in 2007. If Microsoft were to buy RIM, it would involve a transaction orders of magnitude greater than its purchase of aQuantive.

Indeed, the acquisition of RIM would be a scary proposition for the potentates in Redmond. It would be an off-the-scale move, a sharp deviation from Microsoft’s past practices and strategic playbook. But, as the saying goes, desperate times call for desperate measures. Microsoft, I believe, is very desperate. It could immediately realize revenue and profitability from RIM’s product portfolio and business model, which are more lucrative by far than anything Microsoft could offer in the mobile realm. Synergies with complementary Microsoft products and services also ought to be taken into account.

Critics might scoff, perhaps justifiably, citing two factors that argue against a deal (aside from the prohibitive price tag, which we’ve already discussed). First, they would point to technology-integration issues, arguing that Microsoft would struggle to convert RIM’s BlackBerry platform to Windows.

My response: Who says that needs to happen? RIM already integrates well with Microsoft applications and back-end systems. and Microsoft has been rewriting its mobile operating systems, practically from scratch, recently. It’s starting all over again with Windows Phone 7, which is receiving mixed reviews.

What risk would Microsoft incur by replacing Windows Phone 7, which doesn’t have an installed base, with RIM’s BlackBerry OS? I don’t see powerful arguments against the move. The cost of the transaction is a bigger impediment.
But, one might argue, what about Microsoft’s hardware licensees? What would Microsoft do about them?

Perhaps you’ve noticed, but Microsoft is losing their formerly loyal patronage. HP has bought Palm, and will begin using webOS in its mobile devices, while HTC, Motorola, and scores of others increasingly are adopting Google’s Android as their smartphone operating system. I don’t see many smartphone vendors anxiously awaiting the release of Windows Phone 7. They’ve moved on, and Microsoft knows it. What’s more, Google is giving away Android to licensees, making it all the more difficult for Microsoft to sell its smartphone operating system to handset manufacturers. Google changed the business dynamics of the OS-licensing game.

More than at any time I can recall, Microsoft is considering the merits of an integrated platform, one that involves a tight fusing of device hardware, operating-system software, uniform user experience (including a sleek, universal browser), a focused developer program, and a unified means of delivering and monetizing applications and content.

I am not saying Microsoft will buy RIM. The price alone is enough to dissuade it from doing so, and there are valid concerns about corporate integration and assimilation, about being able to get everybody moving in the same direction, about precluding needless and distracting internecine warfare and turf battles. There are good reasons, in fact, not to do such a deal, only a few of which I’ve touched on here.

But there’s desperation in Redmond. It’s palpable. Microsoft views mobile success as absolutely integral to its continued growth and prosperity. But Microsoft is no longer confident of its golden touch, especially in mobile computing, and it is more inclined to look beyond its doors for answers. RIM already has the sort of business Microsoft would like to own, with the potential for further synergies stemming from integration with Microsoft’s enterprise product portfolio and its cloud-computing strategy.

Consequently, I must revise my earlier opinion. I can no longer dismiss the possibility of Microsoft acquiring RIM.

Microsoft Stumbles in Mobile Murk

This post is something of an experiment. I want to write about Microsoft’s commitment  to the tablet PC and see whether anyone cares.

I did not witness Microsoft CEO Steve Ballmer’s opening address at his company’s Worldwide Partner Conference. Most reports suggest that Ballmer was typically loud and proud, proclaiming an imminent Microsoft revival in cloud computing, mobile operating systems, and tablet computing.

For now, in this particular post, I will limit by commentary to Microsoft’s plans for tablet computing. The other topics will be addressed at another time.

According to Ballmer, about 20 device manufacturers will unveil various shapes and sizes of slate and tablet computers based on Microsoft’s Windows 7 operating system before the year ends. Among the vendors churning out Windows 7 slates and tablets will be Acer Inc, Dell Inc, Samsung Electronics Co Ltd, Toshiba Corp, Sony Corp., and numerous other hardware OEMs.

Ballmer didn’t mention HP, which procured its own operating system for smartphones, slates, and tablets when it acquired Palm and webOS. Nonetheless, Reuters reported that HP’s logo appeared on a slide listing PC makers working on Windows-based devices.

It’s hard to know how much to invest in that tidbit, however, because Phil McKinney, CTO of HP’s personal systems group, was simultaneously explaining at VentureBeat’s MobileBeat 2010 conference in San Francisco that his company bought Palm to “control the end-to-end experience” delivered by HP’s mobile devices.

It’s possible, of course, that HP will offer tablets based on Windows 7 as alternatives to its webOS products. HP might do so just to keep its relationship with Microsoft from fraying. Even so, HP will put its primary focus on the technology it acquired from Palm. To suggest otherwise is to question why HP bought Palm, and to question the sanity of HP’s executive leadership. Clearly HP did not buy Palm just so that it could license Windows for HP’s mobile devices.

Putting aside the touchy HP question, does Microsoft have what it takes to compete in a space that has been authoritatively defined by the success of Apple’s iPad? Theoretically anything can happen, but past performance and current circumstances suggest that Microsoft will not become king of this particular castle.

Let’s enumerate the reasons. First, there are questions about the technical suitability of Windows 7 for various slates and tablets. Windows hasn’t performed elegantly on netbooks — I, for one, immediately replaced the sluggish Windows Vista with Ubuntu on a low-end netbook in my possession —  and it’s an open question as to how well Windows 7 will perform on touch-based slates and tablets. A second consideration is whether Microsoft can deliver an experience that will be uniformly satisfactory across a broad range of devices from multiple vendors. Finally, it’s not 1999 anymore, and Microsoft’s isn’t the only operating-system software that device OEMs can evaluate for their new products. Google’s Android and Chrome are available, as are many variations of Linux. Microsoft isn’t the only game in town for tablet manufacturers.

Moreover, and perhaps more to the point, Microsoft seems to lack the customer intimacy and market focus that would give it a fighting chance in any competition against a strong rival with a notable head start.

Does Microsoft understand its tablet customers? Does it know who they are, what they want, and why they might choose a Windows device over one from Google or Apple? I’m not sure Microsoft has those answers. The company still seems to be pitching its products at an indeterminate intersection between the enterprise and the consumer. The trouble is, that crossroads is enveloped in darkness and fog, indistinct and poorly defined. Meanwhile, Microsoft wanders in the market’s wilderness, failing to travel on either road.

As I said earlier, though, anything is possible. Microsoft could get back on track, and it could reverse its declining fortunes in mobile devices, starting with slates and tablets and then —  yes, suspension of disbelief is required for this illogical leap — with smartphones, too. That said, Microsoft didn’t do enough today to prefigure such a bright future. From were I stand, the horizon looks murky and ominous.

Microsoft Hasn’t Earned Benefit of Doubt in Smartphones

At PC World, Tony Bradley strongly counsels his readers to wait and see Windows Phones 7 before they adopt Apple’s latest iteration of the iPhone or Android-based smartphones. He also says it might be prudent to include RIM and its BlackBerry in their assessments, too, but he dismisses that thought by brushing off the BlackBerry as “not really in the same league as the next-generation iPhone and Android devices, or what it seems Microsoft will bring to the table based on what we know so far.”

It is a curious statement that practically begs for a challenge. I will oblige.

First, let’s consider Bradley’s generous optimism toward Microsoft. How many kicks at the mobile can has Microsoft had? And how many times has its foot made solid contact with said can?

Even the most indulgent of observers would have to say Microsoft’s aim has been anything but true. What, then, persuades Bradley to believe Microsoft will do the deed this time? Is it because the company’s mobile group, like a faltering restaurant whose best chefs have decamped, is under new management?

I don’t know whether that’s enough to persuade me. Microsoft has had many chances to get it right with mobile operating systems and smartphones, and I’m at the point now where it must prove that it has the chops to play the game. Until then, I’m a resolute skeptic, and I wouldn’t defer an enterprise buying decision just because Microsoft might deliver a new smartphone operating system later this year. It’s been a long time since Microsoft had the intimidating force to suspend a market in that manner.

Let’s also consider Bradley’s summary dismissal of RIM. Earlier in this commentary, he cites smartphone market numbers, derived from comScore data, that suggest RIM tops the charts in market share. The company actually gained share in the last quarter on record, according to the comScore figures.

Like Microsoft, RIM will release a refreshed smartphone operating system later this year. Unlike Microsoft, RIM has enjoyed considerable market success with its smartphones. Like Microsoft, RIM has more affinity with enterprise users than with consumers. Unlike Microsoft, RIM has given its enterprise customers and service providers mobile-enterprise technologies and handsets that actually integrated smoothly with messaging and application infrastructure. That’s all the more impressive when one considers that, in most instances, RIM’s customers also were Microsoft customers. Even with that leverage, Microsoft failed to capitalize.

I don’t understand how anybody could extol Microsoft as a mobile-enterprise savant while dismissing RIM as a court jester. I fail to see the logic that says, of the two vendors, Microsoft is more likely than RIM to deliver an elegant, seamless mobile-enterprise solutions. How does one reach that conclusion based on what we’ve seen historically? Microsoft’s track record isn’t good, and we shouldn’t give it the benefit of the doubt just because it’s gearing up for another run.

Agreed, RIM’s Blackberry Operating System has fallen behind advances brought to market by Apple, Google, and even Palm, which is preparing for mastication by HP. Like Microsoft — and Nokia, for that matter — RIM will have to make up lost  technological ground on Apple and Google. But like Microsoft, RIM is making an effort to get back into the game, with its BlackBerry OS 6.0 slated for release later this year. Earlier indications suggest that it will close, if not eliminate, RIM’s innovation deficit. Nonetheless, it is not likely to change the fundamental perception of RIM as functional stalwart as opposed to trailblazing innovator.

So be it.  RIM probably doesn’t need to lead in flash and dash to maintain its enterprise clout. RIM understands the needs of enterprises — from application and systems integration all the way through to security and compliance — and it does not figure to be  easily displaced in large numbers of those accounts. Many enterprise users might try bringing their iPhones and Android-based handsets to the office, but that won’t always work, for reasons that vary depending on the specific industries and circumstances in which their employers operate.

Many years ago, when RIM began feathering its young nest among Microsoft’s installed base, I was among those who thought Microsoft might solve mobile email and repel RIM’s incursion with prejudice. Well, that never happened. Microsoft never did get its mobile house in order. Why do some of us think it will be any different this time?

Apple Vaults Past Microsoft in Market Cap, but Markets Never Sleep

There was considerable discussion last night, continuing through this morning, about Apple supplanting Microsoft as the technology company with the largest market capitalization.

The discussion is warranted. When a changing of the guard occurs at the top of the heap — even if it’s a heap built on ever-shifting market valuation  — people will notice and try to invest great meaning in the event.

At a basic and literal level, of course, it means that the market ascribes greater value to Apple than to Microsoft. In terms of mindshare and brand, Apple has been outgunning Microsoft for some time, and the market now believes that, based on where the two companies stand today, Apple is a more valuable company that Microsoft.

What you need to remember about markets, however, is that they’re dynamic. Every day, they rise and fall, twist and turn. They never stop. They aren’t like the World Cup, for example, where a tournament is played, teams are gradually eliminated and one eventually claims the title, all its own until the next World Cup in four years.

On the market, nothing is ever fully settled. There’s no time to celebrate a milestone, because any milestone achieved is arbitrary and fleeting.

So, while I think it’s interesting that Apple has surpassed Microsoft in market capitalization — and while I agree that it says much about both realities and perceptions of both companies in the recent past and in the here and now — I also realize that the market is not finished taking its snapshots and making its sometimes capricious determinations.

Today is another day, and tomorrow will be another. Considering all the ferment and volatility we’ve witnessed in the technology sphere during the last couple months, one arguably could make the case that neither Apple nor Microsoft will necessarily accrue more relative strength during the next several years.

Obviously, Microsoft’s past-performance chart, as well as its current struggles, looks worse. It’s by no means certain that Microsoft can remake itself as its core franchises — Windows and Office — are threatened by a broad-based transition to cloud computing.

Similarly, though, the snapshot the market took yesterday might have captured Apple at its peak.  Apple is under attack for its App Store policies and practices, and its ascendant iPhone is likely to meet stiffer competition in the smartphone market from Google Android-based handsets, RIM’s BlackBerry (still a force in enterprise accounts, despite what you might have heard), HP’s Palm, Nokia (though that’s less certain), and even Microsoft, which is in the process of reanimating its moribund mobile business yet again.

Let’s not forget, too, about the Chinese handset players, who are likely to be major forces in their home markets and might not be content to play the comparatively passive role of software licensees.

Clearly news of Apple usurping Microsoft as market-capitalization king was deserving of notice and commentary. We need to remember, though, that it’s only a snapshot in time, and that markets — the public markets in which stocks are traded and those in which products and services are bought and sold — never sleep.

Back to Smaller Buys for HP?

I read earlier today that HP will take another 18 months to digest its 3Com acquisition. At the same time, HP must figure out how best to leverage the assets it acquired from Palm.

3Com was a bigger purchase, and one that is integral to HP’s desire to topple Cisco from its networking throne. Still, Mark Hurd’s HP doesn’t act on capricious whims, so I suspect an abundance of resources and thought will go into trying to ensure that Palm doesn’t become HP’s mobile white elephant. Even so, Palm might come to naught — or simply not enough.

The point is, HP has considerable integration work to do on two major fronts. While I don’t expect the computing conglomerate to stop fishing M&A waters, I think it will look to hook smaller deals rather than anything more ambitious, at least for the time being.

An article by David Goldman at CNNMoney.com covers similar ground. In discussing how HP’s colossal size inhibits fast-paced growth, Goldman suggests that HP might continue to seek growth inorganically, through strategic purchases. The problem is, HP is constrained by a diminished pool of cash reserves ($14 billion), competitive engagements on multiple fronts, and the need to properly integrate and assimilate its non-trivial 3Com and Palm acquisitions.

Regarding a potential acquisition of Teradata to fill a database hole in HP’s product portfolio, Goldman quotes Mark Kelleher, analyst at Brigantine Advisors:

“HP really has its hands full with integrating 3Com and Palm. I don’t see them pivoting towards a fight with Oracle, especially since HP has really made a concerted effort to take on Cisco.”

There’s a lot of logic in that argument. Unless HP has gone mad with hubris, it probably will pursue tuck-in acquisitions rather than costlier, ambitious ones that open major new competitive fronts.

A logical question is, what — besides obvious criteria — demarcates a tuck-in acquisition from a larger purchase? Part of the answer is valuation, I think, and part of it relates to target market.

If the market capitalization of a target acquisition is more than $5 billion, now is probably not a great time for HP to make the move. Similarly, if HP is buying into a space that is established but new to HP —  and, as a result, would involve protracted competitive warfare against well-entrenched players — now probably is not the best time for that sort of challenge. HP needs to fully digest 3Com and Palm, and it needs to ensure that those acquisitions serve their strategic purposes.

Still, that leaves HP with enough room to play the market, and to bolster and extend its capabilities in areas where it’s already active.

Palm’s Review of Merger Talks Warrants Skepticism

In its preliminary merger proxy, a recent filing to the SEC, Palm and its investment-banking agents try to make it seem as though there had been frenzied competition to buy Palm right up until HP finally made its successful final bid.

I think you should treat these claims with a healthy dose of skepticism. Allow me to explain my reasoning.

First, it is in Palm’s fiduciary interest to demonstrate that it left no stone unturned in pursuit of the best possible deal for its shareholders. Palm wants to avoid lawsuits from aggrieved shareholders, and it wants to make the case that it did everything within its power to identify and negotiate the best outcome.

For the record, I think Palm did right by its shareholders, but I realize the company still feels compelled to gild the lily in making its case.

Second, Palm suggests that all companies with which is spoke were potential acquirers. However, if you parse the language, my friends, you will discover, in the phraseology of a passe bit of vernacular, that it wasn’t all that.

Here’s a direct excerpt from the SEC filing:

From February 25 to April 1, Palm management, Goldman Sachs and Qatalyst Partners were in contact with a total of 16 companies including HP. Of these, six companies, including HP, entered into nondisclosure agreements and participated in meetings with Palm and its advisors to review non-public information concerning Palm regarding a strategic transaction. . . .

At least 11 of those 16 companies were never seriously in the running for Palm. They could not even be bothered signing non-disclosure agreements (NDAs), which are hardly signifiers of impending M&A transactions.

Even those companies that signed NDAs were indicating merely that they wanted to do deeper dives, to see what was under Palm’s kimono. In signing NDAs, they were not committing to bids. They were just gathering information to see whether Palm might be attractive for any one of a number of commercial arrangements, including strategic partnership, licensing pact, or — potentially, if everything looked good and the stars aligned — an acquisition.

But, as anybody who’s done any degree of business development will tell you, an NDA is just an NDA. It facilitates disclosure and potentially deeper discourse, but that’s all it does.

The way I read the Palm sale, several companies were willing to look at Palm, but only three had any meaningful interest in an outright acquisition of Palm. The others were kicking tires, trying to gain market intelligence, or were interested, at least superficially,  in a partnership or a licensing arrangement.

When push came to shove, HP was alone, despite a belated acquisition bid from a company that initially had been interested in licensing intellectual property from Palm.

So, while HP was not alone in the starting gate of the Palm Derby, it quickly established a widening lead position. Other parties had varying degrees of interest in Palm, but I don’t think HP was ever in serious danger of being overtaken.

Major Ramifications from HP’s Palm Buy

Microsoft was one of the primary reasons I did not think HP would pursue an acquisition of Palm. Simply put, I though HP would tap Microsoft as its operating-system partner in the mobile space. I calculated that HP wouldn’t do anything that would endanger its extensively business and technology partnerships with Microsoft.

Well, I was wrong.

In buying Palm, HP sent shockwaves through the industry. It’s time to review and challenge the assumptions and orthodoxies that underpin our understanding of the information-technology universe. This move will have repercussions beyond the mobile space, which is increasingly important in its own right.

Even if HP fails utterly with its acquisition of Palm — even if it spins its wheels as a fringe player in the mobile space with smart phones, tablets, and netbooks running webOS — it has sent a powerful message that is being carefully digested in boardrooms worldwide.

Microsoft, once the capo di tutti capi of the industry, is no longer a feared and respected force. In choosing to buy Palm, in choosing to have an mobile operating system of its own over anything its longtime partner could provide, HP is speaking volumes not only about its own objectives and the changing dynamics of the mobile space, but also about Microsoft’s downwardly mobile place in the world.

The HP-Microsoft partnership is or was exceptionally close, far closer than any dalliance HP had with Cisco. HP and Microsoft partnered across product portfolios, markets, business units, and geographies. If Microsoft developed software, one could be sure it would run on an HP system, be it a server, PC, or mobile device. The companies co-marketed and sold into nearly every addressable market.

Even though executives from HP and Microsoft say the relationship will remain strong, that it will endure, one has to wonder. HP has wounded Microsoft grievously, and both parties know it. What’s more, the rest of the vendor community knows it, too.

Everything must be reconsidered now. How and where else will HP deviate from its Microsoft alliances? Watch for changes to HP’s collaboration and unified-communications strategy, especially for HP to enhance and extend 3Com’s VoIP product portfolio from its mid-market perch. Watch also for HP to bolster its videoconferencing capabilities.

What does Microsoft do now? Now that HP has kicked it in the gut, its other mobile operating-system licensees will question, even more than before, whether Windows Phone 7 Series is really for them. Those doubts are turning into negative judgments, decisions to look elsewhere for what they need.

I would have to think everything is back on the table at Microsoft, even acquisitions of other mobile players, something that would have been unthinkable before HP’s acquisition of Palm. For Microsoft, mobile is too important a space for it to be seen as week and irrelevant.

Irrespective of whether HP succeeds in squeezing value from Palm, it has set off an interesting chain reaction.

Palm Tries to Bluff, but It’s Too Late

In the latest rumor du jour, Lenovo is cited by Reuters as a potential acquirer of Palm. It really does seen the menu changes daily, and if you’re having trouble keeping up with the Palm-takeover speculation, feel free to join the bemused club.

Palm’s sales agents, Goldman Sachs and Frank Quatrrone’s Qatalyst Partners, have conducted themselves with all the discretion and subtlety of carnival barkers. It’s clear that their contrived, heavy-handed tactics — including a seemingly endless succession of leaks to the business press — have failed. If anything, Palm is in a worse situation today than when the investment bankers set up their medicine-show sales tent on the M&A midway.

One after another, like too-obvious suspects in a creaking murder-mystery potboiler, Palm’s rumored acquirers have removed themselves from suspicion, apparently miffed and a little mortified at having been used as plot decoys.

So now it’s down to Lenovo. Before that, companies suggested to have an acquisitive interest in Palm included Dell, Microsoft, Nokia, Google, RIM, Apple, HP, and Motorola. Then, the focus shifted to China and Taiwan, where Huawei and HTC were drafted into the action. Nobody went for the bait — not seriously enough, anyway.

I thought ZTE might be tempted to take a look, but its chairman told Reuters it was not approached by Palm or its agents. Maybe Palm and its agents that ZTE would step from the shadows and declare its interest.

Nonetheless, Palm, distressed and capsizing, is asking too high a price. The company’s advisers (investment bankers) were said to be seeking $1.2 billion for the company. It’s difficult to envision any of the dwindling prospective buyers paying anywhere near that price.

As a result of tepid buyer interest, Palm now is making sounds about staying the course as an independent entity. The company says it could get out of hardware and license its WebOS platform to handset vendors, along the lines of Google with Android and Microsoft with Windows Phone 7 Series or whatever else it decides to sell.

Palm isn’t serious, though. That move wouldn’t make much business sense, not with licensing as its exclusive business model, and not against two well-heeled players who utilize their mobile platforms as vehicles for bigger business ambitions.

Alas, Palm is bluffing when it says ti could just walk away from the M&A table. The problem is, it’s too late to bluff when all your cards are on the table, their faces fully exposed.

Palm’s Acquisition Prospects Bleak

Apparently the handicapping on Palm’s fate has begun, though I have no idea whether bookies are taking bets, online or in the physical world.

My view is that Palm is beyond saving, that it will continue its downward spiral until it eventually ceases to exist. Some see a money-bags acquirer somehow paying more for Palm than it’s worth, but why would anybody sane do that? The company had its run, Elevation Partners pumped it full of funds and brought in new management to effect a turnaround, but the resurrection proved quixotic and short-lived.

Still, there are those who hope an acquisition will happen. Some of them have vested interests, and others, for various reasons, just enjoy seeing deals done.

Some of the Palm acquisition scenarios envisioned by Colin Gibbs at GigaOM seem only remote possibilities. Gibbs, for example, lists Dell and HP as potential acquirers of Palm. In my view, Dell shouldn’t take that plunge, and HP definitely won’t do it.

HP might get back into the handset space, if it can figure out how to tie the effort to web-based photo services and printing, but it’s unlikely to want to want Palm. If you’ve been watching HP lately, you’ll see that it’s been making a concerted effort to get closer to Microsoft. HP and Microsoft have something in common: fear of and loathing toward Cisco.

If HP gets into the mobile-phone market, it will probably have an Asian contract design/manufacturer provide the hardware while using Microsoft’s Windows Phone as the software. At this point, HP needs Microsoft as an ally across a range of products and markets. I can’t see HP risking the relationship with a Palm acquisition, nor can I see HP wanting to take a speculative flyer on a mobile operating system. Mark Hurd’s philosophical approach to business involves risk mitigation and relentless cost controls. I just don’t see today’s HP rolling the dice on Palm.

Dell shouldn’t buy Palm. Dell just made a major acquisition of Perot, and it ought to be following an acquisition strategy that adds to and deepens the software-based value it can bring to enterprise customers and hosting providers. It isn’t exceptionally adept at consumer products or consumer marketing, so it’s difficult to understand what Dell could do with Palm that Palm’s current management hasn’t already done to make the company viable.

At Silicon Alley Insider, Pascal-Emmanuel Gobry mentions other potential acquirers of Palm: RIM, Nokia, Microsoft, and Google.

It would be shockingly out of character for RIM to buy Palm. If one examines RIM’s history and corporate culture, one sees that RIM prefers to develop products and key technologies organically. It’s made acquisitions, yes, but they’ve always involved very small companies and been highly targeted, aimed at capabilities they had tried and failed to deliver on their own.

I just cannot envision RIM scrapping its own mobile operating system for WebOS, nor can I imagine RIM believing the Palm brand is worth more than its own brand. Besides, RIM — at least for now — is more than holding its own in the smartphone market. It’s not desperate enough to roll the dice on a Palm acquisition.

Nokia could make a run at Palm — the company is a past master at poorly conceived and wretchedly executed acquisitions — but I think a sober sense of restraint now inhibits the company’s M&A adventurism. Nokia will try to go its own way on the operating-system front, and its brand is strong enough globally — though perhaps not so great in the U.S. — for the company to remain relevant on its own merits.

Microsoft? Not bloody likely. It’s buried Windows Mobile, and it’s spinning the wheel of fortune with Windows Phone Series 7. I’m skeptical as to whether Microsoft finally has gotten the formula right with its latest mobile operating system, but the software giant seems confident that it has discovered a belated homegrown edge. It will see where that leads.

As for Google, why on earth would they do such a thing? There have been some bumps in the road, but Google is off to a reasonably good start with Android. What it needs now is more commitment to and focus on the horse it already has in its barn, not an ambitious but misguided attempt to assimilate new technologies into the mix. Such a move would engender gratuitous technology-integration challenges and unnecessary brand-identity issues. Google does not need the distractions Palm would bring.

In the end, Palm’s unwinding will be an anticlimax. On that score, I agree with former Jean-Louis Gassee, former founder of Be Inc. and now a general partner at venture-capital firm Allegis Capital. He doesn’t see a white knight with a bag of money riding to Palm’s rescue, either.