Palm Poses Challenges for H-P
PALO ALTO, Calif. (
--
Hewlett-Packard's
(HPQ) - Get Report
's
$1.2 billion acquisition of struggling handset maker
Palm
(PALM)
is a bold move, albeit a risky one.
"We have a low-margin company entering a high-margin business," Avi Cohen, director of research at Avian Securities, told
TheStreet
. "If they can make it work, it will be a good move because
H-P will be able to leverage their manufacturing resources and their supplier relationships."
|
Cohen, however, warns that H-P is entering a highly competitive market very different from its traditional world of servers, PCs and printers. H-P, which exited the first quarter with $13.7 billion in cash, certainly has the money to turn Palm around, but winning over smartphone consumers will not be easy.
"It's a question of design, and whether they can get it right," said the analyst, adding that popular culture dictates smartphone trends. "You could argue that
Apple
(AAPL) - Get Report
won the space by having things that are cool with an OS that works well."
In addition to the integration hassles that are part and parcel of M&A, another big challenge for H-P will be dealing with new competitors. These include smartphone makers such as Apple,
Nokia
(NOK) - Get Report
and
Motorola
(MOT)
, not to mention
(GOOG) - Get Report
and its Android operating system.
H-P announced earlier today that it is buying Palm at a price of $5.70 a share. The deal has already been approved by the boards of both firms, it said, in a statement released after the market close.
The deal was not exactly out of the blue. Earlier this year, Palm gave
, citing
weak demand for its Pre and Pixi phones
, and prompting speculation about the company's future.
In a recent poll, some 65% of readers surveyed by
TheStreet
said that
a Palm acquisition was likely
, although many doubted the company's ability to command a $1.7 billion minimum price tag, as estimated by RBC Capital Markets.
The jewel in Palm's crown, of course, is its highly respected
WebOS
operating system, which was mentioned in the H-P press release discussing the deal.
"WebOS will allow H-P to take advantage of features such as true multitasking and always up-to-date information sharing across applications," it said.
Palm CEO Jon Rubinstein, who recently
trumpeted his firm's ability to survive
, is expected to remain with the company, according to H-P.
Long term, Avian Securities' Cohen believes that the deal is likely to shake up the smartphone sector. "H-P has very deep pockets, so they can push lots of money at being competitive," he explained in an email to
TheStreet
, adding that this could impact Apple, Nokia, Motorola and
Research In Motion
(RIMM)
.
Palm shares surged in extended trading, rising $1.25, or 27%, to $5.88. H-P's stock, in contrast, dipped 35 cents, or 0.66%, to $52.93.
-- Reported by James Rogers in New York
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