Network World — What are the financial basics of this deal?
HP will pay cash for Palm shares, offering $5.70 per share. Current estimate of the deal is $1.2 billion. Palm (PALM) investors (and the usual regulatory agencies) have to agree, but to use Palm Chairman Jon Rubinstein’s word, there’s little doubt that the current investors will be “thrilled” to take the money. The deal is expected to close the end of HP’s (HPQ) 3rd quarter, so probably in July of this year. Palm will operate as a separate business unit with, apparently, many of the current management and engineering teams staying on with HP.
Why is HP doing this Palm deal?
HP executives say this is a “strategic” acquisition of an important, cutting-edge mobile operating system, Palm’s webOS, and the engineering and management talent to continue to make it successful. They say the smartphone market is still in its infancy with a lot of growth ahead of it. And, even more, that webOS will serve as the foundation of a whole range of HP-branded connected mobile devices and accompanying cloud services.
What’s the downside?
HP has decided to become mobile platform vendor, responsible for both innovative hardware design as well as the continued advancement of the OS. That puts it in direct competition with Microsoft (MSFT) (Windows Phone 7, which will begin appearing on handsets late this year), the Android community, which is pumping out a range of handsets and devices with this open OS as well as a lot of applications, and of course Apple’s very successful iPhone and iPhone OS. That’s a formidable challenge, but HP clearly thinks the market can pay off for them.
But Palm was failing, wasn’t it?
It was not selling the number of Palm Pre and Palm Pixi phones that it needed to, certainly. And the prospects, as Palm itself admitted, were not good.
But HP brings some strengths that Palm didn’t have. It can just do more, and do it all on a greater scale. HP is a global company, a fact that’s important for reasons as varied as squeezing costs out of Palm’s supply chain, and expanding webOS device sales and marketing; it has solid infrastructure relationships with eight major carriers worldwide and HP executives said they plan on leveraging those for webOS devices in the future.