Some buyout rumors sound so logical that only pride, ignorance, and incompetence could get in their way. I guess that's why the rumors that Dell
It's been a little more than a week since industry-watchers at Dow Jones, Reuters, and ComputerWorld pondered the two companies' potential nuptials. Dell would love a little skin in the smartphone market. Palm would love a sugar daddy to help it escape from its financial straitjacket.
Let's go over a few of the reasons why a deal makes a spooky amount of sense.
1. Dell has no business jumping into the crowded smartphone market alone.
How dumb do you have to be to introduce a new smartphone these days? The market already has Research In Motion's
Throw in the recent arrival of netbook leader Acer -- and Palm's PDA-pioneer cred and buzzworthy upcoming Palm Pre -- and you've got a competitive landscape with little elbow room left.
"Dell's Smartphone: Dead on Arrival" was my headline when The Wall Street Journal exposed the computer maker's plans to dive into the high-end handset market two months ago. My opinion hasn't changed. Buying Palm would help on both fronts, since Dell would be acquiring an established name and also eliminating a potential threat.
2. We can't all be Apple.
Dell has fallen flat whenever it strays too far from its bread-and-butter computing hardware roots. Whether we're talking about Dell-branded televisions or the dirge-inspiring DJ Ditty MP3 players, the company's graveyard of failed products is a constant reminder of its limited range.
Dell's hardly alone in the boneyard. Hewlett-Packard's
That said, Dell's had far greater success on the rare occasions when it buys out other companies -- as with Alienware, a high-end computer maker for diehard gamers, three years ago.
If it wants in on smartphones, Dell will have to reach beyond its comfort zone. Since Research In Motion has the corporate market covered, it has to compete in retail, where it just hasn't been a very vocal participant in the past. In the smartphone market, Palm would give Dell a household brand and street cred with both companies and consumers.
3. Palm is attainable.
In an ideal world, Dell would get cozy with Research In Motion. Unfortunately, the BlackBerry maker commands a $25 billion valuation, despite trading at a third of last year's high. Palm comes laden with warts, but it also comes priced at an enterprise value just less than $1.7 billion.
Dell closed out the year with $9.1 billion in cash and short-term investments. In other words, it can afford to get the deal done without making much of a dent in its massive vault.
Palm shares have taken off since the hype began building for its Pre device in January, but Dell still has the greenbacks to reward Palm investors, even if they demand a steep premium to cash out.
4. Palm could use the capital infusion.
So many things could prevent the Pre from helping Palm return to relevance:
- Apple may pose legal challenges.
- Palm has endured seven consecutive periods of quarterly losses, atop negative shareholder equity and more debt than cash on its balance sheet.
- Even a great device can flop with the wrong marketing campaign.
Palm could use Dell's billions to protect and market the Pre. Dell also has an enviable list of big-time customers, making it easier to sell massive quantities of smartphones to a company by bundling them with a large computing hardware order.
With Palm all but gambling the future of its company on the Pre's success, there's really no better time for Dell to make a Pre-emptive strike.
5. Dell will have to pay now, or pay more later.
Dell can't just afford to sit this out. If the Pre is a runaway hit, Palm will be off to the races. If not, Palm may get cheaper, but its grasp on the market will get pounded once again.
Palm will also get more expensive if Microsoft
So what is Dell waiting for? If it wants to do the smart thing in smartphones, time is running out.
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