HP Adds Palm to Portfolio

HP is making a major push into the smartphone market by reaching an agreement to purchase Palm for $1.2 billion. The transaction will give HP control of smartphones manufactured using the Palm webOS mobile operating system.

By combining its global reach and financial strength with Palm’s webOS platform, HP hopes to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets. HP will use Palm as a platform to expand its mobility strategy and ultimately seeks to create an HP experience that can be delivered uniformly across an array of connected mobile devices.

HP’s purchase of Palm makes sense from several angles. Computing, at least on the personal level, is clearly going mobile. Just as laptops and even smaller netbooks are now making traditional desktop PCs virtually obsolete, it is only a matter a time before smartphones and other PDAs replace portable computers. With the teen set, this is already happening.

And while $1.2 billion is a substantial amount of money, even for a company with HP’s deep pockets, purchasing Palm is a far more realistic option than purchasing many of its major smartphone platform competitors, which include Google, Apple and Microsoft.

However, Palm’s affordability may also be a symptom of its major problem: most people don’t use it. Palm had a 5.4 percent share of the U.S. smartphone market in February 2010, down from 7.2 percent in November 2009, according to comScore rankings. While HP’s press release announcing the purchase touts Palm’s “unique” features, the fact remains Palm is not currently a major player in the smartphone market.

Of course, once HP puts its marketing muscle behind the Palm webOS platform and connects it to widely used HP devices, Palm may become a more formidable competitor, especially for business users. HP may have felt forced to buy Palm or risk losing out on entering the smartphone arena, but time will tell if it was the right decision.

The transaction is expected to close during HP’s third quarter ending July 31, 2010. Palm's current chairman and CEO, Jon Rubinstein, is expected to remain with the company.