HP Buys Palm for $1.2B, Targets iPhone, Android, iPad

HP made another move to expand its product lines to new markets with its purchase of Palm, giving HP a quick entrance into the fast-moving smartphone and mobile device market dominated by Apple's iPhone. The acquisition follows another huge one just closed by HP -- 3Com, which filled out HP's networking and security portfolios while giving the company a strong presence in China.

HP (NYSE: HPQ) has agreed to acquire Palm Inc. (NASDAQ: PALM)for $1.2 billion, giving the 70-year-old technology juggernaut a foothold in the mobile handset market while at the same time it rescues the Palm platform in an increasingly fast-moving and competitive market.

HP said in a statement that the combination of HP's global scale and financial strength, together with Palm's webOS platform will give HP what it needs to compete in the smartphone – against the likes of Apple's iPhone and a growing field of Android-based phones – and connected mobile device markets. Those markets now also include tablet computers that would go head-to-head against Apple's iPad device. HP could potentially use Palm's webOS on its forthcoming tablet computers.

That statement could be seen as a snub to the Windows Mobile platform. From another past acquisition -- Compaq -- HP owns the iPaq product line of smart phones and PDAs, including the HP Glisten which made its debut at the end of 2009. The Glisten runs Windows Mobile 6.5, and the device earned HP this headline: "With the Latest IPaq, HP is Still Phoning it in."

But HP's Palm acquisition marks a new age where the computer maker will now also own the smartphone operating system, giving it greater control over the platform.

And the Palm deal also moves HP closer to the idea of providing true end-to-end computing -- from the data center's servers to the smallest, most mobile client. It's a road that HP has been traveling on in an effort to create a single vendor approach to take to customers.

Witness HP's other huge acquisition last fall that closed just a few weeks ago as HP added networking player 3Com. 3Com's technologies filled out HP's networking portfolio, added a strong China presence and beefed up its security technologies.

Quick Facts: The HP/3Com Deal

Today's deal expands HP in yet another new direction.

"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," says Todd Bradley, executive vice president, Personal Systems Group, HP, in a prepared statement "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."

Palm's revenue fell by nearly half in 2009 to $735.9 million from $1.3 billion the year before. Palm posted a net loss of 732.2 million in fiscal 2009. It's products have failed to keep up with the powerful iPhone and BlackBerry brands. The company today further cut expectations for its upcoming earnings announcement.

"If you saw the guidance Palm just put out, it was clear they had to sell,"  Phil Cusick, analyst at Macquarie Research told Reuters. "Given how quickly Palm's business was falling off and how fast their cash was going out the door, they're lucky to get what they got."

"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," says Jon Rubinstein, chairman and chief executive officer, Palm, in a statement. "We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners."

Under the terms of the merger agreement, Palm stockholders will receive $5.70 in cash for each share of Palm common stock that they hold at the closing of the merger, the companies said. The deal has already been approved by both companies boards of directors. The transaction is expected to close during HP’s third fiscal quarter ending July 31, 2010.

Palm’s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.