Hewlett Packard to buy Palm for $1.2bn

Hewlett-Packard has stepped in to buy the troubled smartphone maker Palm, announcing a $1.2bn deal on Thursday that brings to an end the growing doubts over the future of the personal technology brand.

The deal will catapult HP, the world’s largest tech company in terms of revenue, into the middle of the rapidly growing smartphone business in direct competition with a handful of other tech giants, including Apple, Google and Microsoft.

HP said it would pay $5.70 a share in cash for the company, representing a 23 per cent premium over its closing stock price on Thursday.

Palm’s shares have fallen by three-quarters from their peak six months ago as the Silicon Valley-based company has failed to drum-up the sales it needed to convince Wall Street that it could remain an independent company.

Shane Robison, chief strategy and technology officer at HP, said the company was making the purchase mainly to get its hands on Palm’s Web OS operating system, which has won plaudits in the tech world since its launch early last year. HP executives also hinted that they would use the software in future for larger “tablet” computers to rival Apple’s iPad.

The purchase brings a new twist in the shifting rivalries between some of the world’s biggest tech companies as they jostle for position in the booming market for smartphones and tablets. As the world’s biggest PC maker HP has been a close ally of Microsoft, but will now find itself a direct competitor in software.

“This will probably anger Microsoft,” said Ken Dulaney, an analyst at Gartner. He also questioned HP’s decision to spread its efforts across different operating systems, adding: “They’ve got a lot of work to do on both fronts.”

The purchase is intended to jump-start HP’s smartphone business by bringing both technology and developers from Palm, Mr Robison said.

Although an early leader in the hand-held PCs that preceded smartphones, HP has stood by until now while first Apple and then Google revolutionised the business with a new generation of touch-screen devices.

Palm’s value to HP also lay in its portfolio of more than 1,000 patents, which will make it easier for the company to carve out a place in the market, Mr Robison said.

Palm also revealed on Wednesday that it had suffered a further sharp deterioration in its smartphone sales and cash reserves, adding to its urgency in finding an acquirer. The company said revenues this quarter were likely to reach only $90-100m, compared to the $300m Wall Street had been expecting as recently as last month. It also said its cash would fall to $350-400m by the end of May from $592m three months before, prompting analysts to predict that it could run out of cash before the end of the year.