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HP smartphones a near reality with Palm acquisition

Leading PC manufacturer buys ailing Palm in a deal worth more than a billion dollars

Hewlett-Packard buys Palm in a deal worth more $1.2 billion.
Hewlett-Packard buys Palm in a deal worth more $1.2 billion.

Hewlett-Packard has made an unexpected push into the smartphone market with its acquisition of US-based Palm in a deal worth $1.2 billion.

Palm, the makers of smartphones and the Palm webOS mobile platform, have been struggling to make a profit for a while now. They posted a net loss of $22 million in their latest Q3 results but the figure reflects a better performance compared to the same quarter last year that saw losses amounting to $98 million.

HP says the acquisition of Palm will ‘accelerate HP's growth within the more than $100 billion connected mobile device market' - one that is currently dominated by Apple's iPhone and RIM's BlackBerry smartphones.

HP is the latest PC and notebook manufacturer to enter the smartphone market following the likes of Dell and Acer. While Dell's Mini 3 handsets are confirmed only for the Chinese market, Acer's smartphones are available in several key markets, including the Middle East.

"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," said Todd Bradley, executive vice president, Personal Systems Group, HP. "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 current chairman and CEO Jon Rubinstein, who will remain with the company, welcomed the move and called HP the ‘perfect partner' to accelerate the growth of webOS.

Analysts however don't seem convinced. Dave McQueen from Informa Telecoms & Media believes Palm devices will not add much to HP's portfolio because of its build quality and relatively poor sales.

"It appears that HP intends to use webOS in other device types, much as Apple has extended iPhone OSX to the iPad, however there are still issues with awareness and applications development, which is paramount to success in the smartphone market," McQueen states. "Distribution is key, as Google recently learned. Traditionally, HP has a very good distribution network that will help channel to market but it will need to work closely with mobile operators, a weakness of Palm's, in order to succeed."

The acquisition is still subject to certain closing conditions, including approvals from domestic and foreign regulatory approvals as well as Palm's stockholders. If all goes well, the deal is expected to close before July 31, 2010.