HP Pays $1.2 Billion For Palm

Purchase signals vendor’s role as serious player in mobile device market.

Hewlett Packard Co. said it will pay $1.2 billion to acquire Palm Inc., the beleaguered smartphone maker, in a deal that instantly makes the vendor a player in a segment it pegs at some $100 billion but has scarcely felt its presence.

HP said it will pay $5.70 in cash per share of Palm common stock. The deal, which has received approval by the boards of directors of both companies, is expected to close during HP’s third fiscal quarter ended July 31, 2010.

Jon Rubinstein, Palm chairman and chief executive, will remain with the company, although his role was not disclosed. Palm’s research and development and engineering team will be retained as a business unit within HP, officials said.

With the deal, HP gains access to Palm’s Pre and Pixi smartphones, and, perhaps most importantly, its webOS operating system, which support some 2,000 applications and with which HP gets a platform to deliver mobile cloud-based services and a lever to propel customer preference.

HP currently sells a smartphone aimed at business customers called the iPaq, which it positions as a pocket PC and sells for about $400 through online retailers. Sales of the product have slid precipitously in the past year. HP declined to project if the iPaq product would migrate from running on Windows, as it currently does, to operating on webOS.

“We believe that the acquisition of Palm is a transformational deal in the connected mobility market, opening up opportunities for further profitable growth by leveraging the unique strengths of Palm, along with the unique strengths of HP,” said Todd Bradley, HP executive vice president, personal systems group, in a presentation to analysts following disclosure of the agreement.

Vendor looks beyond Palm acquisition

Bradley said that with the Palm acquisition HP will look beyond smartphones to additional connected mobile devices.

“We anticipate that with the webOS we will be able to aggressively deploy an integrated platform that will allow HP to own the entire customer experience, to effectively nurture and grow the developer community, and to provide a rich, valued experience for our customers,” he said.

Bradley offered that the acquisition was a synergetic match of technology and resources that, driven by additional HP investment, holds the potential to significantly advance the vendor in the market for mobile devices.

“Palm brings the right operating environment, a valuable IP portfolio, and the people who know how to drive innovation that matters to customers,” he said. “HP brings to the table both the financial strength and the commitment to further invest to accelerate profitable growth in the connected mobile device market.”

Bradley said that HP intends to leverage the webOS to construct tablet/slate systems not only for consumers but also for vertical markets such as health care and education.

“First, our breadth of products between smartphones, slates and potentially netbooks represents an enormous opportunity to our customers,” he said. “We believe that this is a very, very early stage market.”

HP officials stressed that the vendor intends to spend a great deal more money to press sales and marketing for the Palm line and to extend the webOS platform.

“We are going to be taking this platform, which today exists in smartphones and taking it much broader than that,” said Jim Burns, HP vice president, investor relations.

“We are going to be putting more money behind the sales and marketing commitment of it, and so we are definitely going to be investing heavily in this business in the next year,” he said.

Burns said that HP expects the Palm acquisition to slightly dilute its earnings in the second half of this year and for fiscal 2011 but would contribute to the vendor’s bottom line after that.

TAGS: mobile,smartphone,HP,Palm,webOS

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