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Fri, Apr 30, 2010 - Page 10 News List

HP to buy Palm in bet on smartphones

GOOD DEAL? Analysts said HP’s foray into smartphones could threaten players like Nokia and HTC, but some thought buying a US-centric brand was a poor investment


Hewlett-Packard Co (HP) announced a US$1.2 billion deal to buy Palm Inc, betting it can resuscitate the struggling smartphone maker to compete with the likes of Apple Inc and Research in Motion (RIM).

Analysts say this year’s third-largest US tech acquisition grants Palm’s devices global production and distribution reach, while launching the world’s top PC maker into a tech arena experiencing blistering growth.

The news on Wednesday surprised many on Wall Street, since much of the long-running takeover speculation surrounding Palm had shifted in recent weeks to focus on potential Asian bidders, such as China’s Lenovo (聯想).

An early pioneer in handheld devices, Palm once dominated the market but has since been surpassed by Apple’s iPhone and RIM’s BlackBerry.

Palm put out a new mobile operating system, the well-reviewed webOS, last year, but even that has been overshadowed by Google Inc’s Android software.

In a sign of Palm’s struggles, the money-losing company headed by Jon Rubinstein — a former Apple executive famous for developing the iPod — slashed revenue expectations for the current quarter. It said slow product sales have led to low order volumes from carriers.

Palm reported losses for each of its last two fiscal years.

Shares of Palm, 30 percent owned by Elevation Partners, jumped 27 percent to US$5.88, above HP’s US$5.70 cash offer.

HP said the deal for Palm, which both boards have approved, valued the company at US$1.2 billion including debt. Based on Palm’s latest filing, the deal values Palm’s 167.892 million shares outstanding at US$957 million.

Analysts said HP has deep pockets to invest in Palm, can expand its carrier relationships and negotiate better component pricing from existing suppliers.

HP’s foray into the fiercely contested smartphone arena may not immediately threaten Apple and RIM’s BlackBerry but may increase pressure on Nokia, Motorola and other device manufacturers now battling to expand their market share.

“Nokia will be one of the most affected players,” IDC analyst Francisco Jeronimo said. Because of a “wrong portfolio and lack of carrier support, Nokia never moved from its eighth position ... in the smartphone segment. This deal puts also pressure on Motorola and HTC (宏達電).”

Others, however, were more skeptical about HP’s ability to turn around Palm, whose Pre and Pixi phones have withered in the face of fierce competition.

“If HP wants to have a global role in the mobile space, spending US$1.2 billion in Palm is not the way. Palm has no brand outside the US, and it has no distribution outside the US,” said John Strand, chief executive of Strand Consult.

“To pay US$1.2 billion for a US-centric mobile player that’s not successful is a first-class way to destroy shareholder value. Palm has tried to move from the PDA world into the mobile world for eight years without success,” Strand said.

According to Gartner, Palm held 1.2 percent of the global smartphone market last year, compared with Nokia’s 41.1 percent, RIM’s 19.9 percent and Apple’s 14.4 percent.

Palm now expects fiscal fourth quarter revenue in the range of US$90 million to US$100 million, compared with its forecast last month that revenue would be less than US$150 million.

Todd Bradley, executive vice president of HP’s computer division, said the company plans to “invest heavily” in Palm, increasing spending on sales and marketing and research and development in the hope of spurring the developer community into writing more applications for the platform.

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