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Hewlett-Packard acquires Palm, WebOS for $1.2 billion

SUNNYVALE, Calif – In April, Hewlett-Packard announced it would buy Palm and its WebOS operating system for US$1.2 billion. The acquisition will help HP move into a sector that is surging – the market for smartphones and tablet computers, offsetting cutthroat competition and razor-thin margins in the traditional desktop and notebook computer segment.

What’s more, computer rivals Lenovo and Dell had been eyeing Palm, which had put itself up for sale. The purchase by HP can be seen as a defensive move, to protect itself from a competitor moving ahead in the smartphone business.

The deal makes HP the only major company with its own smartphone operating system, with the exception of Apple. Other phone makers use operating systems from Microsoft or Google.

Industry analysts say that Palm’s webOS is an impressive operating system, but that Palm, with its Pre and Pixi smartphones, has struggled to compete with the Apple iPhone and RIM’s BlackBerry.

Backed by HP, Palm will now have the resources and manufacturing discipline to invest in new designs and produce cost-effective products. In addition, it will be able to leverage HP’s existing retail and corporate partnerships to sell more units to businesses and consumers.

The WebOS operating system also gives HP a unique platform for developing the new generation of tablet computers. Apple has been making waves in this segment with its iPad – not only have consumers been snapping up the devices, but business and healthcare software companies are quickly producing versions of their applications for the iPad.

With a strong company like HP behind Palm, more applications are likely to be written for the WebOS, including healthcare apps.

In a statement, HP outlined its strategy as the following

• Take Palm’s WebOS;

• Use HP’s scale and financial heft to bulk Palm up;

• Leverage HP’s channel and enterprise connections to make Palm a player;

• Create a mobile ecosystem.

Add it up and the HP purchase of Palm may be enough to keep developers – a primary factor in smartphone success – in the fold.

Palm CEO Jon Rubinstein is expected to remain at the company.

Todd Bradley, chief of HP’s personal computing group, said in an e-mail that: “Smart phones are one part of our long-term strategy, and our focus is even greater in deployment of WebOS products that go beyond smart phones.”

HP has already said it plans to introduce a tablet computer based on Microsoft software. The company may very well switch to the Palm system, given that ownership of its own operating system is a way of differentiating itself from others who are moving into the production of tablet computers.

Bradley is no stranger to Palm. He came to HP in 2005 after two years as CEO of Palm. At the time, Palm was trying to revive its fortunes after stumbling in the market for handheld devices. It was never able to catch up to RIM and Apple.

Bradley had more success at HP, where he helped the company cut production costs and form alliances with major retailers, thereby boosting sales and overtaking Dell as the top PC brand.

Posted May 6, 2010