HP buys Palm for $1.2 billion

HP has bought Palm for $1.2 billion, as the PC maker stages a dramatic entry into the smartphone market.

The company intends to extend Palm’s webOS operating system across a range of devices, which may include slates. While HP said it will continue to support Windows Mobile on its iPaq devices, buying webOS will allow the company to more tightly integrate the hardware and software.

PC companies don’t need mobile phone type margins to make the model work, they can be much more price-aggressive

“Palm possesses significant IP assets and has a highly skilled team,” said Todd Bradley, executive vice president of HP’s Personal Systems Group.

“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.”

At a stroke the deal puts Palm in a position to battle with the smartphone market’s big hitters, and breathes new life into a company which had the wind knocked out of it by poor quarterly results.

HP has confirmed that Jon Rubinstein will continue as chief executive of Palm, which will now exist as a wholly owned subsidiary of HP.

“We’re thrilled by HP’s vote of confidence in Palm’s technological leadership,” said Rubinstein. “HP’s long-standing culture of innovation, scale and global operating resources make it the perfect partner to rapidly accelerate the growth of webOS.”

Tough sell

The deal has been approved by both boards and is expected to close by the end of July. Analysts have claimed it will prove good news for consumers.

“PC companies don’t need mobile phone type margins to make the model work, they can be much more price-aggressive in capturing share and will certainly drive margins down for everyone else,” said Avi Cohen at Avian Securities.

However, experts have warned that merely buying a handset maker is no guarantee of success, even for a company as large as HP: “WebOS could indeed become a major asset for HP and obviously has scope for use on devices such as tablets,” said Tony Cripps, principal analyst at Ovum.

“However, HP will need to drive traction for WebOS among developers, if it is to truly capitalise on that potential. That may not prove easy –application writers show an overwhelming desire to support three or perhaps four device platforms.

With at least that many already dominating the space, HP may have its work cut out proving the revenue earning potential of WebOS devices to developers,” he concluded.