Palm may be scooped up by an Asian company with enough cash and manufacturing muscle to turn around the struggling smartphone maker.
Huawei is the latest name to surface as a possible bidder for Palm, whose phones have steadily lost customers to the iPhone and BlackBerry. Two months ago, Palm reached out to Huawei’s bankers regarding a possible deal, although talks haven’t moved forward, according to a source.
Palm declined to comment, but another source said this week the company has hired bankers to explore several options, including a sale of the company.
Consumers don’t associate Chinese brands with quality products and don’t pay a premium for such a mobile phone. Palm would be perfect for them
Huawei, in a statement, also declined to comment on a merger, but said it is “always open” to opportunities that will enhance its business development.
If Palm fits that bill, Huawei could face competition from a handful of other companies in Asia. Various reports suggest inquiries in the region already include a PC maker, a handset developer and a telecommunications provider.
Several North American companies – from computer maker Dell to Blackberry maker Research in Motion – have also been mentioned as potential suitors.
Low-cost handsets
But speculation has started to favour overseas concerns that can use broad manufacturing capabilities to boost the supply of Palm-branded phones at lower costs, as well as help bankroll the advertising and promotion of new products.
“I think its someone who is on the outside looking in to the US smartphone market – someone who wants to participate but isn’t there currently – a Huawei or a Lenovo,” said Avian Securities analyst Matthew Thornton. “It’s those types that would be the best fit.”
“They can capture the Palm brand, their carrier relationships, (and) the patent portfolio,” Thornton added. “For anyone that is starting from scratch in the US, this deal makes some sense.”
Smartphone maker HTC has also talked to Palm about a possible acquisition, according to reports. China’s ZTE has been cited as another potential suitor.
“Huawei and ZTE are potential buyers,” said IDC analyst Francisco Jeronimo in London. “It makes sense: they don’t have an operating system or a brand, but they have cheap manufacturing costs and money to invest and develop the brand.
“Consumers don’t associate Chinese brands with quality products and don’t pay a premium for such a mobile phone. Palm would be perfect for them.”
Palm shares have jumped more than 55% in the past week on speculation about a potential sale of the company. But the stock fell 14.6% to close at $5.16 on Tuesday after analysts suggested the rally made the company too pricey.
“We remain concerned that it may be a ‘take-under,’ meaning a price that is below its current share price,” Kaufman Bros analyst Shaw Wu said in a note. “This is due to Palm’s large operating losses and likelihood that operating expenses remain high due to investment required to stay competitive in the smartphone space.”
Despite its challenges, Palm is still the third biggest brand in the biggest growth sector of the mobile phone market, trailing Apple and RIM. In the US, smartphones represented about one-third of new handset volume in the fourth quarter of 2009, according to NPD Group.
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