April 29, 2010, 3:23 PM

HP buys Palm for $1.2 billion

Computer maker and online retailer Hewlett-Packard has agreed to acquire smartphone provider Palm Inc. for $1.2 billion in cash.

Computer maker and online retailer Hewlett-Packard has agreed to acquire smartphone provider Palm Inc. for $1.2 billion in cash.

The transaction has been approved by the HP and Palm boards of directors. The deal is expected to close during HP’s third fiscal quarter ending July 31.

A HP spokeswoman declined to disclose whether the company plans to continue operating the Palm.com web site or whether it will begin selling Palm products on its web site. However, Todd Bradley, HP executive vice president, personal systems group, said yesterday during a webcast announcing the acquisition that the company will look to broaden the distribution of Palm’s products.

The deal gives HP access to Palm’s smartphones, as well as its software platform for smartphones and other mobile devices, such as tablet computers.

“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 Bradley. “And Palm possesses significant IP [intellectual property] assets and has a highly skilled team.”

HP is betting that the acquisition can help it improve its footing in the smartphone market, Wall Street analysts say, however opinion is mixed whether it will produce the desired effect.

“Palm had difficulty gaining traction in smartphones, but it possesses decent technology and products that could be revitalized under stronger [research and development] and channel platforms,” wrote Mark Moskowitz, J.P. Morgan analyst, in a research note. “In our view, HP can make this happen, but the smartphone market is ultra-competitive, so it is a wait-and-see story.”

A primary challenge for HP is assembling an app ecosystem in line with other smartphone operating platforms, like Apple Inc.’s iPhone and Google Inc.’s Android, says Moskowitz. Palm has about 2,000 apps, while Android and the iPhone have approximately 20,000 and 185,000, respectively.

The deal is a relatively low-cost bet for HP to improve its consumer business, said Keith Bachman, BMO Capital Markets analyst, in a research note. Even so, his note says he was modestly against the deal given Palm’s small share of the smartphone market.

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