HP acquires Palm in US$1.2 billion acquisition

Las Vegas – After struggling in recent years to reclaim the success it once had in pioneering the personal digital assistant market, smart phone vendor Palm (Nasdaq: PALM) has agreed to be acquired by Hewlett Packard Co. (Nasdaq: HPQ) in a deal worth US$1.2 billion.

The acquisition, which is still pending shareholder approval and is expected to close in HP’s fiscal third quarter, gives HP popular Palm products such as the Pre and Pixi, as well as Palm’s critically acclaimed new mobile operating system, webOS. HP sees the acquisition giving it an immediate foothold in the emerging smart phone market, and sees webOS as the foundation that will allow it to build a common connected mobile experience across devices, from smart phones to netbooks and even it’s upcoming slate offering.

HP Canada executives were unavailable to discuss the acquisition. But in a conference call with press and analysts, Todd Bradley, executive vice-president of HP’s personal systems group and himself a former Palm CEO, said Palm’s world class technology coupled with HP’s financial strength, product portfolio breadth and global scale will allow it to deliver a compelling mobile user experience across devices.

“We believe the acquisition of Palm is a trans-formative deal in the connected mobility market, opening up opportunities for further profitable growth by leveraging the unique strengths of Palm, along with the unique strengths of HP,” said Bradley. “In acquiring Palm, HP dramatically accelerates the assets needed to deliver compelling, connected mobile experiences.”

While the acquisition does involve hardware, HP seems most excited about webOS, which Bradley described as a very strong OS with a unique customer experience, an application store with 2,000 apps today and growing, and a strong platform for mobile cloud computing.

Bradley believes it will scale well to other devices, allowing HP to create a unique experience across connected devices.

“We anticipate that with the WebOS we’ll be able to aggressively deploy an integrated platform that will allow HP to own the entire customer experience, to effectively nurture and grow the developer community, and provide a rich, valued experience for our customers,” said Bradley.

HP will invest heavily in product development, and Bradley said he sees opportunity in both the consumer and enterprise segments, where key verticals such as health care and education have compelling use cases for connected mobile devices such as tablets and slates.

As for Microsoft Corp., Bradley said they’ll remain a key strategic partner, but it’s unclear if that means Windows Mobile will play a role in HP’s mobility strategy.

At HP’s Americas partner conference this week in Las Vegas, HP executives have continually been stressing the strength and breadth of HP’s product portfolio to offer customers complete and integrated end-to-end solutions. Acquiring Palm strengthens that message even further said James Alexander, senior vice-president with London, Ont.-based InfoTech Research Group.

“It’s a bold move, but one that really helps them to realize that vision of having a full portfolio,” said Alexander. “To me, the key to this acquisition is really webOS. They’ll be able to extend webOS from the actual smart phone into other mobile devices. I’m anticipating this HP Slate everyone is talking about, it will be ideal for webOS. To me, webOS is really the crown jewel in the Palm portfolio.”

Alexander said InfoTech’s research shows the business mobility market is reaching a tipping-point, moving rapidly away from standard phones toward smart phones enabled with business apps and functionality. With webOS, leveraged with the networking, security and business integration capabilities that HP can bring to the table, Alexander says Research In Motion and the BlackBerry will finally have true, enterprise-class competition.

“BlackBerry has had its run of the roost because of all the things BlackBerry provides: it’s secure, and a robust extension of corporate e-mail,” said Alexander.

Apple’s iPhone has been making business inroads from the consumer camp but IT has been resisting; Palm/HP addresses many of those IT issues.

“Combine webOS, with features like universal search, social media integration and multitasking, with HP’s ability to manage all the devices on the network and HP’s status as a truly enterprise-class organization, and there seems to be the perfect alternative to BlackBerry and iPhone,” said Alexander. “In my view it’s not a consumer play, it’s a corporate play. As we move forward, businesses will increasingly embrace smart phones as an extension of the corporate computing platform.”

The Palm acquisition also makes an “inordinate amount of sense” to Kevin Restivo, senior analyst for mobility with research firm IDC Corp. Coming at it more from a consumer perspective, Restivo said Palm and the Pre device will strengthen HP’s existing wealth of offerings in the consumer market.

“HP is a much larger company and has the resources to support what by all accounts is a very strong OS, and it can build additional products and get them to market and to more places by virtue of its resources,” said Restivo. “It gives Palm new life, and for HP it gives them an immediate smart phone offering in an attractive and promising market HP wants to take an immediate foothold in.”

While the Pre and webOS will be HP’s consumer mobile bets, Restivo said if HP moves up market he wouldn’t be surprised to see them also go to market with another OS, such as Windows Mobile, noting other smart phone vendors go to market with multiple OS options.

It will be an uphill climb to gain share, however. Restivo said IDC’s worldwide smart phone shipment data for 2009 shows Palm with just 1.5 per cent of shipments.

According to a one analyst, HP strong channel network could give Palm sales a big boost.

Steve Hilton, principal analyst for Boston-based Analysys Mason, said HP has a strong track record in acquisitions. It’ll take the best bits of Palm technology and make them better. Then HP will sell the solutions through their powerful channel better than Palm ever could do on its own.

However, Hilton added, will HP use Palm to create an enterprise mobile device to dislodge RIM and Nokia? “The short answer is yes. HP’s channel in the enterprise and small enterprise sector is too powerful to ignore. RIM’s success is its hindrance in new product development. And while Apple has certainly found a small enterprise foothold, at the end of the day Apple is a consumer-centric company. Nokia has been stumbling for a couple years trying to find its way back to enterprise dominance.”

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Jeff Jedras
Jeff Jedras
A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate. He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN. His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

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