Why Motorola should buy Palm

palmlogo.jpgThe days of Palm Inc. remaining an independent company are numbered. The once promising and fast growing handheld device maker is likely to be acquired by Nokia, Motorola, or a private equity firm, reports Unstrung. The deal could be announced as soon as Thursday, and some heavyweight buyout funds are in running.

To repeat the obvious, Palm’s current state of affairs is a result of haphazard management practices and a sad tale of a company that got whiplashed by the rapid technological changes that rewarded scale more than innovation.

That said, Palm is still a company worth a gamble, and the most strategic and ideal home for Palm would be Motorola. Motorola has its reasons, as Unstrung reports. Apparently, CEO Ed Zander wants to buy the company because it can give some relief from the profitless prosperity of low margin cheap phones and at the same time nudge up its margins. Pricing leverage is a good reason – just not the only reason.

But first why it doesn’t make sense for Palm to go with others:

Nokia’s record of acquisitions is quite checkered, and they don’t make any bones about their big bet on Symbian OS. Nokia has some Linux experiments under way, but at this stage, it’s an all Symbian strategy. They are likely to buy Palm to get market share in the US, but that’s not exactly the reason for a deal. Maybe it will help them get some desperately needed traction for Intellisync, a company they had acquired in November 2005 for $430 million.

The Palm management is favoring private equity funds, but they are unlikely to save the company by following the buyout manual. Palm needs reach, deals with large phone carriers and more importantly the scale of a large player like Nokia or Motorola to be more competitive with rivals, especially the newly resurgent RIM.

treo750.jpgMotorola, on the other hand, makes the most strategic and tactical sense, not just for Palm, but also for Motorola. Why? Motorola is one of the few companies that has managed to keep the multiple OSes in its arsenal, betting its future on Linux but not giving up on its own proprietary OS and Windows Mobile as yet.

Motorola has scale, and is a pretty strong presence in fast growing mobile markets such as India and China. While using the Motorola UI is like watching the New York Yankees in October – painful – the cell phone pioneer does know how to make good hardware.

That brings us to Palm’s one key asset: its OS expertise. A lot of people are deluded by the company’s hardware, which frankly in this era of slim and sexy is nothing to write home about. Folks who are Treo users are true fanatics and Palm has done a good job of retrofitting the OS into a smart phone form factor. The independent developer ecosystem around Palm is still vibrant and only adds to Palm’s appeal. They have some Linux expertise as well, thanks to a deal with Access.

However, the real reason why Motorola should buy Palm is for its Microsoft Windows Mobile OS. After playing around with scores of Microsoft Mobile Phones and smart phone devices, it is not hard to come to a conclusion that Palm’s implementation is far superior to everyone else. This is especially true on the latest Treos that have 3G capabilities and have addressed most of the problems except a crappy photo camera.

The difference between Palm’s UI of Windows Mobile and others is the difference between Madonna and Britney Spears. One has acquired almost elegance, but the other is just tacky. Grafting Palm Windows Mobile OS into a “Q” and replacing the Q keyboard with something more soothing like Palm’s keyboard could be a killer combination.

Palm would also make Motorola the IT-department approved device vendor. Palm has gone through a painful approval process and there are scores of enterprise apps with Palm clients.

If Motorola is serious about taking on Blackberry, Palm makes sense for another reason. Back in November 2006, Motorola spent millions and bought push-email vendor Good Technology. Good has always worked best on Palm devices – of all flavors, and in fact has an experience that is superior to Blackberry.

Of course, Motorola can also get cost efficiencies out of Palm by getting rid of much of the management – and just maybe that is why the Palm management favors a deal with the private equity buyers.

Update: Something’s clearly up. The Chicago Tribune is reporting that Ed Zander just canceled his keynote at CTIA on March 27, 2007.