Hewlett-Packard to swallow Palm in $1.2-billion deal

Hewlett-Packard Co. plans to buy smart phone maker Palm Inc. — which helped spark the mobile digital revolution with its renowned PalmPilot device in the mid-1990s — in a cash deal for $1.2 billion.

Palm had been struggling in recent years, however, under the weight of competition of the iPhone from Apple Inc. and BlackBerry from Research in Motion Ltd., and there had been widespread speculation that Palm would not survive on its own.

The sale would give HP, whose own smart phones had not caught fire with consumers, a noted brand in the field and Palm’s operating system, WebOS.

“The smart phone market is large, profitable and rapidly growing,” said Todd Bradley, HP’s personal systems group vice president, in a statement. “HP intends to be a leader in this market.”

In a phone call with analysts, Bradley said Palm’s operating system would be compatible with a variety of the company’s computers, including its upcoming Slate tablet, allowing consumers to transfer digital content between computer and phone.

But analyst Charles Golvin of Forrester said the deal could be more a benefit to Palm, which shipped 960,000 phones in its quarter ending Feb. 26, but sold only 408,000 — down 29% from it’s previous quarter. In the same period, Apple sold 8.7 million iPhones.

“This deal is really about HP controlling the software running on smart phones, Palm’s WebOS, as well as the hardware itself,” Golvin said. “In the longer term, that might not be the best move for HP because WebOS is so far behind Apple’s iPhone software and [ Google’s] Android OS. Palm simply isn’t strong enough in the mobile space to make up that ground.”

Palm would operate as a division of HP, Bradley said. Jon Rubinstein, Palm’s current chairman and chief executive and a former Apple exec, is expected to remain with the company, HP said in a statement.

The transaction has been approved by the HP and Palm boards of directors. HP said it’s expected to close by the end of July.

The announcement was made after the close of markets on Wednesday.

Palm’s stock closed at $4.63, down 2 cents or 0.43%.

HP shares closed at $53.28, up 3 cents or 0.06%.