By: Mark Hachman
Hewlett-Packard agreed Wednesday to acquire Palm for $1.2 billion, pairing the world’s largest PC manufacturer with a portable device maker whose fortunes have fallen on hard times.
HP agreed to pay $1.2 billion or $5.70 per share for the company, versus a market value of about $781 million for Palm. Palm chief executive Jon Rubenstein is expected to stay with the company, HP said.
Palm’s WebOS will allow HP to take advantage of features such as true multitasking and always up-to-date information sharing across applications, HP said.
But the message that HP appeared to try to get across was this: technically, Palm’s WebOS is sound, as are the Palm smartphones. What’s lacking, HP executives said, was the investment in development, marketing and sales needed to take Palm’s WebOS platform to the next level.
In acquiring Palm, HP dramatically accelerates the assets needed to deliver compelling, connected mobile experiences,” Todd Bradley, executive vice president of HP’s Personal Systems Group – and a former chief executive of Palm – said during a conference call Wednesday afternoon. “Palm’s world-class technology coupled with HP’s financial strength will accelerate our strategy for these connected global devices.”
“We intend to invest heavily in product development and go to market to drive this business aggressively,” Bradley added.
Bradley did not discuss product timelines, but said he would divulge more after the deal closes. He did say, however, that HP expects to be able to push the WebOS into products beyond phones, perhaps to compete more with Google’s Android and other mobile operating systems. Microsoft, which provides the Windows Mobile operating system that lies underneath HP’s iPAQ phones, will continue to be a strategic partner.
“Microsoft is a huge piece of our business today and they will continue to do so,” Bradley said.
One analyst asked about how a merged HP-Palm entity will compete with Apple, which has made content, with its iTunes music and video files, a key focus. Bradley had little answer.
“Our focus is to provide connected devices…to connect users to that information that is important to them,” Bradley said.
“I don’t think we’re content creators, but we are access providers,” Bradley added.
Palm shopped around
On April 12, reports said that Palm had begun seeking a buyer, with both HTC and Lenovo said to be interested in a deal. But HTC bowed out shortly thereafter. So did Michael Abbott, the head of the WebOS technology team, who left for Twitter.
In March, Palm reported that its revenue would be far below Wall Street expectations, based on unsold piles of its Palm Pre Plus and Palm Pixi Plus smartphones. Verizon subsequently beganadvertising both phones at tremendous discounts.
But though HP remains on top in the PC space, its iPAQ line of PDAs has remained on life support, with the release of the Glisten keeping alive a PDA line that hadn’t received a real update since the iPaq 910 in 2008.
Palm’s share of the smartphone market, meanwhile, dropped 1.8 percentage points to 5.4 percent of all U.S. smartphones sold during February 2010, versus November 2009, according to comScore. Palm still ranks fifth in U.S. smartphone platforms, having been passed by Google.
“HP’s announced acquisition of Palm gives it an entry into the fast-growing smart phone market—but the move has implications far beyond cell phone hardware,” said Tina Teng, senior analyst, wireless communications, for iSuppli, in a statement. “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.”
Palm was the world’s tenth-largest smart phone brand in the fourth quarter of 2009, accounting for 1.5 percent of unit shipments, according to iSuppli. Palm’s share of the global smart phone market has remained flat during the past year, with the company commanding 1.3 percent of shipments in the fourth quarter of 2008.
“While critically acclaimed, Palm simply did not have the resources needed to effectively compete with players such as Apple, Google and Microsoft with deep pockets and the resources to sustain themselves in the market,” Altitude’s Michael Gartenberg wrote. “The combination of Palm technology and brand combined with HP resources and channel partners will be a strong combination for HP to drive their mobile efforts forward.”
Sprint, Palm’s longtime partner, said the company would be happy to continue the relationship. “Palm has been a strong partner of Sprint’s for a long time and contributed to our improved performance in 2009,” the company said in a statement. “We look forward to continuing our working relationship with Palm and HP going forward.”
Bradley also highlighted the strong patent and engineering resources that Palm brought to the table.
“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,” Bradley said in a statement released before the call began. “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.”
Recently, a security researcher suggested that Palm’s WebOS was inherently insecure, demonstrating a number of attacks. Those vulnerabilities have since been patched.
The acquisition is expected to close during the third quarter, subject to regulatory approvals.