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TheStreet Open House

HP Faces Rocky Road With Palm Buy

By Matt Hamblen and Nancy Gohring

Analysts say it's no sure bet that Hewlett-Packard Co. 's planned $1.2 billion purchase of Palm Inc. will prove successful. In fact, an IDC research note gives it only a one in four chance of working out.

At the close of the deal, expected by July 31, HP will gain a struggling smartphone business and the means to create a tablet to take on Apple Inc.'s iPad , though such a project would take at least a year.

"HP needs a strong presence in mobile, but Palm doesn't deliver that," said Charles Golvin, an analyst at Forrester Research Inc.

Golvin said HP would have been better off -- and spent a lot less -- by simply trying to hire away Palm's top engineers. By acquiring the company, HP gets the Palm brand and its intellectual property, neither of which it needs, he said.

And, Golvin added, Palm's WebOS mobile operating system is probably not "viable in the long term in the face of competition."

Analysts also cited the smartphone makers's lack of success in Europe, and the dearth of WebOS applications -- fewer than 4,000 apps have been developed for Palm's operating system, while 150,000-plus iPhone apps are now available through Apple's App Store.

Gartner Inc. estimates Palm's share of the U.S. smartphone market to be 4.3% and its European share a barely visible 0.2%.

Nonetheless, the combined company will have to quickly find ways to better compete worldwide against handhelds running Google Inc. 's increasingly popular Android mobile operating system, market leader Nokia Corp.'s top-selling Symbian-based devices and the iPhone.

After announcing late last month that the deal had been struck, HP executives said the company will quickly increase Palm's $190 million research and development budget while funding new sales and marketing activities.

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