HP will buy Palm for $5.70 per share of Palm common stock in cash or an enterprise value of about $1.2 billion. The HP and Palm boards of directors have approved the transaction. HP says that it is making this move to enhance its ability to participate in the growing smart-phone and connected mobile device markets.

According to iSuppli, smart phones represent the hottest segment of the cell-phone market. Worldwide smart-phone shipments will rise to 247 million units in 2010, up 35.5% from 182 million in 2009, iSuppli says. In contrast, total cell-phone shipments will climb to 1.28 billion units in 2010, up only 11.3% from 1.15 billion in 2009.

However, growth isn’t guaranteed for these companies. Palm’s share of the global smart-phone market remained flat during the past year, with a 1.5% share of the market. And while iSuppli says that Palm’s Pre smart phone offers significant advantages over Apple’s popular iPhone, it has failed to make significant headway in the market.

“Palm’s webOS appears to be superior to the Mac OS X used in the iPhone in the crucial area of multitasking capabilities,” said Tina Teng, senior analyst of wireless communications for iSuppli. “This is a key point of differentiation, combined with the product’s multi-touch display.”

“Palm’s innovative operating system provides an idea 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 (intellectual property) assets and has a highly skilled team.”

“It appears that HP intends to use webOS in other device types, much as Apple has extended iPhone OS X to the iPad,” said Dave McQueen, principal analyst at Informa Telecoms & Media. “However, there are still issues with awareness and applications development, which is paramount to success in the smart-phone market.”

McQueen also wonders how the combined organization will operate, as HP’s Windows Mobile business-focused devices and Palm’s webOS handsets haven’t been very successful in the marketplace. He notes that distribution, an HP strength, will be key. But HP will have to work closely with mobile operators, a Palm weakness, to succeed.

“The battle for dominance in the high-tech world increasingly is focused on the mobile Internet. Any company that can manage to control the flow of revenue from wireless data users—coming from subscriptions, ad sales, or app store revenues—stands to benefit enormously,” said Teng. “With the Palm purchase, HP has positioned itself as a player in this great technology battle.”

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

HP

Informa Telecoms & Media

iSuppli

Palm