HP to buy Palm for US$1.2bn – a new force in mobile?

29 Apr 2010

Technology giant Hewlett-Packard is buying struggling smartphone maker Palm for US$1.2bn, seeing off potential bids from players like HTC and Lenovo. The moves comes after Palm lost its battle to survive as an independent player.

Palm had recently gambled all on its innovative Palm Pre smartphone but lost ground in the face of renewed vigour from Apple with its iPhone and the proliferation of Android devices in the marketplace.

HP’s plans for Palm’s webOS

HP plans to put Palm’s webOS at the centre of its own mobile device plans, creating a credible competitor to Apple and Microsoft with its Windows Mobile 7.

The world’s biggest technology manufacturer also plans to use Web OS in embedded hardware, such as in tablet computers and print labelling machines

The combination of HP’s global scale and financial strength with Palm’s unparallelled webOS platform will enhance HP’s ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets.

Palm’s unique webOS will allow HP to take advantage of features such as true multitasking and always up-to-date information sharing across applications.

“Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices,” said Todd Bradley, executive vice-president, Personal Systems Group, HP.

“And, Palm possesses significant IP assets and has a highly skilled team. The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share. Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market,” Bradley said.

Palm stock

Under the terms of the merger agreement, Palm stockholders will receive US$5.70 in cash for each share of Palm common stock that they hold at the closing of the merger. The merger consideration takes into account the updated guidance and other financial information being released by Palm this afternoon.

The acquisition is subject to customary closing conditions and the approval of Palm’s stockholders. The transaction is expected to close during HP’s third fiscal quarter ending 31 July 2010.

“We’re thrilled by HP’s vote of confidence in Palm’s technological leadership, which delivered Palm webOS and iconic products such as the Palm Pre. HP’s longstanding culture of innovation, scale and global operating resources make it the perfect partner to rapidly accelerate the growth of webOS,” said Jon Rubinstein, chairman and chief executive officer, Palm.

”We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners,” Rubenstein said.

“HP’s announced acquisition of Palm gives it an entry into the fast-growing smartphone market — but the move has implications far beyond cell-phone hardware,” said Tina Teng, senior analyst, wireless communications, for iSuppli.

“The battle for dominance in the high-tech world increasingly is focused on the mobile internet. Any company that can manage to control the flow of revenue from wireless data users — coming from subscriptions, ad sales or app store revenues — stands to benefit enormously. With the Palm purchase, HP has positioned itself as a player in this great technology battle.”

Smartphone shipment projection

Smartphones represent the hottest segment of the mobile-phone market. Worldwide smartphone shipments are set to rise to 247 million units in 2010, up 35.5pc from 182 million in 2009. In contrast, total mobile-phone shipments are projected to climb to 1.28 billion units in 2010, up 11.3pc from 1.15 billion in 2009.

Palm was the world’s 10th-largest smart-phone brand in the fourth quarter of 2009, accounting for 1.5pc of unit shipments. Palm’s share of the global smartphone market has remained flat during the past year, with the company commanding 1.3pc of shipments in the fourth quarter of 2008.

While Palm has made limited headway in the smartphone market so far, the company’s Pre smartphone offers significant advantages compared to Apple’s benchmark iPhone.

“Palm’s webOS appears to be superior to the Mac OS X used in the iPhone in the crucial area of multitasking capabilities,” Teng said. “This is a key point of differentiation, combined with the product’s multi-touch display.”

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years