The two most plausible arguments for the recent run-up in Palm's
- A short squeeze is under way, or
- Investors are buying into a rumor that Nokia
(NYSE:NOK) wants to make a bid for the company.
Yesterday, Foolish writer Anders Bylund examined how and why a short squeeze might be occurring. With that in mind, let's look at why a buyout offer from Nokia could make sense.
Simply put, Nokia's smartphone business is now in something of a rut. Just a couple of years ago, the company seemed to have an unassailable position in the smartphone market, with popular devices running a combination of the Symbian operating system and Nokia's S60 user interface.
Since then, however, we've seen Apple
Just as importantly, Apple and RIM command a level of consumer and developer enthusiasm that arguably goes beyond what Nokia possesses for Symbian. Search for Symbian applications online, and you can find a decent number of apps -- but nothing comparable to what's available on the iPhone's App Store. Big-name developers also seem somewhat more interested in creating apps for RIM's BlackBerry than the Symbian/S60 duo. Fewer installed apps means less loyalty to the underlying platform, which leaves consumers more open to switching.
One recent research report predicted that Apple's smartphone market share would eclipse Nokia's in 2011, and that by 2013, the latter's share would fall to 20%. But even if that forecast proves too pessimistic, Nokia clearly realizes that its Symbian-focused approach isn't good enough. Smartphones are continuing to soar as a percentage of global handset sales, with higher margins than less powerful phones.
That's why Nokia recently announced the N900, the first phone to run its Maemo operating system. But the N900 carries a high price tag, and Nokia itself is referring to it as a niche product, thus it might not be a runaway success. Also, while reviews of the N900 and Maemo have generally been positive, they give the impression of a smartphone product that is simply competitive, rather than revolutionary. And it will probably take a revolutionary product to stall Apple and RIM's momentum at this point -- just ask Google
Palm's Pre, however, does arguably possess a revolutionary platform. Thanks to Palm's webOS operating system, the Pre can claim a number of unique features that Apple and RIM can't replicate, and which users rave about. And while Palm's recent guidance still suggests a tough competitive environment, you have to wonder about how successful a family of webOS devices might be with Nokia's R&D, sales, and marketing muscle behind them -- not to mention Nokia's global brand. When you consider that webOS, like Maemo, is based on Linux, and that in Palm's biggest market (North America), Nokia's smartphone market share is miniscule, and you can make a pretty compelling argument for Nokia to make a buyout offer.
Of course, Nokia's investments in Maemo could make it hesitant to abandon the platform for webOS. And Nokia has historically shied away from acquiring competing phone manufacturers -- even when rivals such as Qualcomm
To be clear, the reports of Nokia being interested in acquiring Palm are still just rumors, but desperate times call for desperate measures. And while Nokia's position in the smartphone market hasn't become desperate yet, the trend definitely isn't in the company's favor.
