The Enterprise Tablet – Why Cisco May Buy Palm
Update: HP announced it is acquiring Palm for WebOS-based computing devices the same day I wrote this.
We’ve all heard for a while now that Palm’s most likely suitors are the off-continent smartphone/computer makers HTC and Lenovo. But there’s an overlooked potential buyer who could be a dark horse to buy Palm: Cisco Systems.
Cisco has an unbelievable history in technology M&A, and has $25B in cash net of debt, trailing only Apple and Microsoft within tech. But why would Cisco want Palm? Behind Cisco’s networking exterior is actually a software DNA. In fact, if you walk the halls at Cisco, engineers will even boast ‘Cisco is a software company’. Incredible, considering Cisco sells networking gear.
But such generic software synergies would never be enough for Cisco to waste time with Palm – there are much more specific reasons why Palm would be strategic for Cisco today:
Cisco is rumored to be building an enterprise tablet computer, combining IP telephony, video, WebEx & mobile collaboration.
All signs point to this making sense. Why should Cisco cede the enterprise market to Apple (and Google, HP)? Cisco actually touted WebEx on the iPad on day 1, and it’s very clear they believe that a portable form factor will succeed in the enterprise – marrying collaboration, video (two of Cisco’s – four pillars– ) hybrid cloud apps, and mobility.
But unfortunately for Cisco, they don’t have a web-centric, mobile optimized platform OS. Their networking operating system ‘IOS‘ is way too bloated for mobile app-centric appliances. And though the Linksys consumer line uses embedded Linux, it’s fragmented across chip vendors/ODMs and lacks platform richness.
This leaves Cisco three options: make, buy, or license. Creating a new platform is infeasible based on time constraints. What about licensing Android? Maybe – but Cisco dislikes licensing core IP, and they would then be partially reliant on Google, whom they are increasingly competing with (collaboration, IP telephony, STB markets).
Enter Palm. WebOS would be an unbelievable platform on which Cisco could build a feature-rich enterprise tablet, while still controlling the platform and OS. Beyond a tablet, Palm’s software expertise could be shared across Cisco’s 20+ business units. IP and patents could help Scientific Atlanta build web-friendly set top boxes, and the mobile platform fits with the future of the Flip line of HD cameras. Non-technology synergies also exist – e.g. Cisco’s VP of Consumer Marketing Ken Wirt is ex-Palm.
Despite all these synergies, Palm indeed comes with a lot of baggage. Cisco heartburn would likely center around what other buyers actually want – the handset business. I doubt Cisco has any interest in competing against Android, RIM, iPhone et al while losing money (though I could be wrong – Cisco is #1 in enterprise VoIP phones, and has great relationships with AT&T and Verizon).
These worries can’t be trivial, but even still, Cisco has been known to throw around big money just for IP and employees (e.g. Procket, whom they bought for almost $100M and shut down). So it would not be shocking for Cisco to purchase Palm, cut SG&A, let carrier relationship dry out, cease new platform development, and allow the Pre/Pixi to slowly play out.
Buying Palm would also be dilutive to Cisco’s earnings, and this is generally a no-no from Wall Street’s perspective. But explaining Palm as a strategic imperative for a collaboration-rich, WebEx-centric enterprise tablet would surely appease the street. Which is why I believe Cisco is watching the Palm death-watch play out, and will pounce if the price is right.