HP snatches up Palm for $1.2B

Hewlett-Packard stunned the industry yesterday by announcing it will buy beleaguered smartphone maker Palm (NASDAQ: PALM) for $1.2 billion. The news ended weeks of speculation about Palm's fate and pushed HP deeper into the smartphone market.

Palm stock chartThe price values Palm's stock at $5.70 per share--a 23 percent premium over the closing price of Palm's shares on Wednesday. Boards from both tech companies have approved the deal, and the transaction is expected to close by July 31.

WebOS to netbooks?

HP said it will use Palm's resources to expand its own mobile strategy, and lauded Palm's intellectual property and team. During a conference call with analysts after the deal was announced, Todd Bradley, executive vice president of HP's Personal Systems Group, praised Palm's webOS operating system and said that HP will leverage its distribution channels and financial strength to help expand the platform. He said HP expects to take webOS beyond smartphones, possibly to tablets and netbooks for both consumers and enterprise users.

Jim Burns, HP's vice president of investor relations, said HP will invest in webOS research and development and sales and marketing. Further, Bradley promised HP will nurture Palm's still-nascent webOS developer community. "We believe the developer community will very aggressively--as we invest and provide support--begin to develop that suite of applications for webOS to make it more compelling than it is today," he said.

The companies said in a release that Palm CEO Jon Rubinstein will remain at the company, though they did not say in what capacity. "Jon is very excited about staying and executing his vision for [taking] webOS into the broader market, and I think HP brings those capabilities for him to do that," Bradley said.

One outstanding question is what will happen to the Palm brand. According to Engadget, HP has not yet decided how to handle the Palm brand--whether to replace it with the HP brand, maintain the Palm branding or somehow join the two.

Don't compare it to the iPhone

At least one analyst sees the teaming as positive. "The products and the businesses seem very complimentary," NPD Group analyst Ross Rubin told FierceWireless. "HP has been dabbling in the smartphone market for a couple of years now. Companies that are leaders in the notebook space need to be more mindful of what's happening in smaller form factors, because increasingly the competition is going to come from those smaller devices that are growing up and getting larger in size."

Rubin warned against analyzing the deal through a comparison to Apple and its popular iPhone. "Not every mobile OS needs to serve the same purposes or have the same goals that iPhone OS has," he said.

Palm, which essentially launched the PDA market in the 1990s, has been trying to stage a comeback for the past year and a half on the back of its new operating system, webOS. Though Palm's webOS received wide praise when it launched last year, the company's Pre and Pixi phones have struggled to find a following in the market. Analysts at J.P. Morgan recently estimated Palm was on track to burn through $534 million before reaching break-even in May 2012.

Acquisition speculation has been rampant since multiple reports earlier this month indicated Palm had tapped Goldman Sachs and another investment bank, Qatalyst Partners, to find a buyer. HTC, Lenovo and other handset makers had been bandied about by analysts as potential suitors. HP was sometimes mentioned, but had not been thought of as a serious contender by many analysts. Through the deal, HP joins the likes of computer makers Dell, Lenovo and Acer in targeting the smartphone market.

Palm first launched its webOS phones through Sprint Nextel (NYSE: S) in the middle of last year, and Verizon Wireless (NYSE: VZ) introduced newer versions of Palm's Pre and Pixi smartphones in January. AT&T Mobility (NYSE: T) is expected to launch Palm's products later this year as well.

In its most recent quarter, Palm reported a net loss of $18.5 million, narrower than the $95 million net loss it posted in the year-ago period. The company shipped a total of 960,000 smartphone units during the quarter, up 23 percent from the second quarter of fiscal year 2010 and an almost 300 percent increase from the year-ago quarter. However, smartphone sell-through for the quarter, which ended Feb. 26, was 408,000 units, down 29 percent from the second quarter and down 15 percent year-over-year.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Engadget post
- see this Michael Gartenberg post

Related Articles:
Palm software head Michael Abbott resigns
Palm's stock jumps after Harbinger reveals stake
Nokia, Motorola named as potential Palm buyers
Report: Palm searching for a smartphone suitor
Palm CEO admits to hitting 'speed bump' with webOS

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