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New competition for mobile with HP and WebOS

HP has the financial resources and the manufacturing know-how to make a dent in the mobile market now that it will control Palm's WebOS software.

Mobile companies have been able to shrug off Palm's WebOS over the past year as Palm struggled to stay afloat. That may no longer be the case.

If Hewlett-Packard's proposed $1.2 billion acquisition of Palm goes through as expected sometime by the end of August, the smartphone race will have a new competitor with deep pockets. HP, barely a speck on the mobile landscape with its iPaq devices, spoke of plans to use Palm's WebOS in a variety of devices during a conference call Wednesday afternoon discussing the deal.

Palm Pre WebOS
HP is buying Palm for its WebOS development, which will give it a credible mobile operating system in one swift move. Palm

HP will provide a nice soft landing for Palm. The tech community considered WebOS a strong product but it never really resonated with consumers, as battery life glitches on the Pre and bizarre marketing did not help. Lost among the frenzy of Wednesday's announcement was the news that Palm had further reduced expectations for its fourth-quarter revenue, citing "slow sales of the company's products, which has resulted in low order volumes from carriers."

That could be set to change. HP promised to increase spending on research and development as well as sales and marketing, courting developers with promises to develop a family of WebOS devices beyond smartphones. That could include tablets, slate devices, and potentially netbooks, said Todd Bradley, head of HP's personal systems group.

"And since tablets are primarily front ends to the Internet, it allows HP to deploy many cloud-based services from which it can generate revenues, including those in an app store, streamed services, etc," wrote Jack Gold, a veteran telecommunications analyst, in a research note Wednesday afternoon.

The modern smartphone industry has mostly developed without participation from traditional PC companies: other than Apple, of course. HP's iPaq devices were at one point considered decent, but the company never really committed to improving the hardware and its reliance on Windows Mobile allowed it to get lapped by companies like Apple, Google, and Research in Motion.

It's not that HP, Dell, and Lenovo didn't see the transition coming, but it doesn't really matter at this point: time is running out to stay relevant amid a historic shift. Lenovo was considered a front-runner for Palm and Dell is planning a series of mobile devices based around Google's Android.

This is a market that moves at light speed, and it will take some time for HP to get up to speed, during which companies like Apple and Google continue to forge ahead. But the mobile industry still has a few reasons to be wary of a combined HP-Palm.

"With the Palm purchase, HP has positioned itself as a player in this great technology battle," said Tina Teng, a senior analyst with iSuppli.

HP has proven itself much more adept at advertising and product design than Palm, taking over the PC market from Dell over the last decade by focusing on quality and consumers. Bradley did not get into specifics, but it sounds like HP is much more interested in WebOS as opposed to the Pre or the Pixi, meaning that HP will likely take the lead on hardware design and put Palm's engineers to work on software.

Microsoft has reason to be worried about WebOS in HP's hands. HP is supposed to be a major partner for Microsoft's Windows Phone 7 launch later this year, promising to work with Microsoft on "signature phones on the Windows Phone 7 Series that offer an entirely new consumer experience," according to a press release at the time.

Bradley reiterated HP's commitment to Microsoft during the conference call, but he also said "with Palm, HP acquires a strong operating system to deliver a unique customer experience." That sounds like overlapping language, and HP could easily be expected to favor its own software over something from an outside party.

Microsoft downplayed any conflict, not that it would have been expected to do anything else. "HP is a strategic partner and will continue to be so for Microsoft. Mobile is a dynamic and high growth market and one where consolidation is expected as it evolves," the company said in a statement.

HP's move is also a bit of a rejection for Google's Android software, which was expected to run on an upcoming slate device alongside a slate device running Windows 7. Android is a much more established mobile operating system than WebOS, so Google isn't losing much here. But HP will be able to put much more emphasis behind developer outreach that could have an effect on the Android growth story.

Apple and Research in Motion--the thought leaders among consumers and businesses, respectively--likely won't feel any competitive effects from this deal for some time. Even if HP manages to pull off a huge turnaround for WebOS devices in 2010, Palm's market share was meager enough to present little challenge for the top two smartphone companies in the U.S.

However, the long run competitive outlook has improved for this industry. Palm simply wasn't going to be able to spend enough to support WebOS against the giants of this market, and HP will be able to do that without breaking a sweat. And the more competition in the market, the better.

"Expect the rate and pace of innovation, product launches, alliances and lawsuits to pick up even more speed as platform providers attempt to gain ground on their competitors and survive longer term consolidation and shake outs," wrote industry analyst Michael Gartenberg in a blog post Wednesday afternoon discussing the post HP-Palm market.

HP is a fierce competitor in PCs, servers, and IT services. There's no reason to think it won't make a mark on mobile with WebOS.

Ina Fried contributed to this report.