HP entered an
agreement to acquire Poly for $3.3 billion. It’s an interesting turn as it was in 2011 that HP exited video by selling its Halo videoconferencing division to Polycom (now Poly). The more I think about this acquisition, the more I like it, for both companies.
Overall, this is a reasonable exit for Poly's investors and a very interesting shift for HP.
HP is a fascinating company with a long, rich history. I’d go so far as to say it’s a legendary company — or companies (as it has split in two on
two separate occasions). HP was founded back in 1939 as a producer of specialized instruments. It supplied the technology Disney used to create Fantasia. It provided test measurement gear that enabled the build-out of FM radio stations. From 1968 to 1986, it produced calculators (and I still use mine).
The HP we know today was really formed in the 1970s when it shifted to computers. It first produced minicomputers and expanded into workstations, and then in the 1980s, PCs and printers. HP played a key role in the birth of the personal computer. Steve Jobs got hired at HP as an intern at the age of 12, and Stephen Wozniak developed his first computer at HP.
HP has dabbled in enterprise comms, but primarily focused its products on computers and data center solutions. These are not the high growth sectors they once were, and neither are PCs and printers. HP’s PC business is reporting declining unit sales, though prices and revenue are up. Its printing business has been declining for several years, likely in part due to online meetings. Remember when we used to distribute printed copies instead of screen sharing?
Two major changes have occurred since HP sold its Halo business in 2011. First, the video business got larger and more mainstream. Halo was a high-fidelity, end-to-end solution. While Poly still sells complete end-to-end solutions, the growth is in devices and peripherals associated with Microsoft Teams, Zoom, and other meeting applications. Poly offers room systems, webcams, monitors, speakers, and headsets.
HP may see Poly as a growth opportunity in a hot market. The video space grew significantly during the pandemic, and businesses are expected to video-enable more spaces with the return to the office. HP currently offers only a few products, including a Microsoft Teams Room (MTR) solution centered around its Slice PC and a single HP branded headset.
Poly has some challenges, and acquiring it for growth may raise some eyebrows. However, acquisitions and growth are relative. What might seem like a relatively low growth business can be a relatively high growth market for the acquirer. In other words, HP may be able to unlock growth that Poly could not.
Poly was ill-prepared for the supply-chain issues over the past few years, and that significantly limited its growth. The chip shortage was so bad that Poly introduced a new line of phones last year that were designed around chips that it could get. HP simply has a larger ability to manage its suppliers.
The bigger issue limiting Poly’s growth is what it can and can’t do. Microsoft and Zoom impose a lot of restrictions on their hardware partners. It’s a reasonable practice as they want to ensure a consistent user experience for customers using applications such as Teams. The problem is the size differences and balance of power between a company like Microsoft and Poly.
If you go back a decade or so, when Microsoft launched Lync, Polycom (now Poly) was its first major hardware partner for phones and meetings. As Microsoft’s calling and meetings products grew, Polycom benefited too — at least initially. Over the years, Microsoft added more hardware partners to give its customers more options and to better meet global demand. Today, Microsoft has approved calling and meeting hardware partnerships with AudioCodes, Bose, Crestron, Dell, EPOS, HP, Lenovo, Logitech, Neat, Yamaha, and Yealink. Microsoft itself also offers its own headsets, USB speakers, and webcams.
All of these partners compete with nearly identical products as they are limited in how they can innovate and differentiate. Consider Poly’s CCX 500 and 600 phones. The CCX 500 is an Android-based phone approved for Microsoft Teams. The CCX 600 is an almost identical phone with an optional camera that’s approved for use with Zoom. Microsoft doesn’t allow cameras on its phones.
Poly has been a leading provider of IP phones for decades. It worked closely with several providers such as BroadSoft to develop SIP interoperability. Poly’s VVX series phones work with all other UCaaS services, including 8x8, Cisco, RingCentral, Zoom, and more.
Microsoft recently added a gateway solution, but primarily uses a separate line of proprietary phones. Microsoft also requires a Teams version of other peripherals, including headsets and speakers. Again, all other brands tend to support standard USB and Bluetooth devices. The impact of these rules means that a small company like Poly has to manage separate versions of most of its products — a challenge exacerbated by supply chain shortages.
Conversely, HP and Microsoft have a long history of mutual success. The companies appear to have developed an equitable partnership that has spanned PCs, servers, networks, and more. HP, Dell, and Lenovo (all approved partners for Teams) will likely have advantages in manufacturing (including supply chain management) and global distribution.
HP will also help Poly with brand and recognition. The name Poly was launched at Enterprise Connect 2019 to acknowledge the merger of Polycom and Plantronics. This younger brand is still trying to catch-up to Polycom in terms of recognition. Just this month, when Lumen was describing a close alliance with Poly, it referred to Polycom. The HP brand immediately solves this and restores credibility and recognition with enterprises.
There can be a happy ending here for all of Poly’s portfolio. I for one was sorry to see Poly pull back from its consumer headset business – another area where HP’s brand and distribution can help. HP already makes displays but doesn’t have anything like the all-in-one P21 from Poly. Apple just raised the bar even higher with a chip-enabled, all-in-one display, so a new wave of meeting-ready monitors may be upon us.
While I was sorry to learn that Poly’s story was coming to an end, I’m optimistic the tech will thrive. HP needs Poly and Microsoft needs HP.
Dave Michels is a contributing editor and analyst at TalkingPointz.
