HP to buy struggling Palm for $1.2 billion

Hewlett-Packard plans to buy struggling phone maker Palm for US$1.2 billion.

The announcement, which came just after the U.S. stock market closed on Wednesday, follows rumors this week of a number of suitors, including Lenovo and HTC, vying to buy the iconic brand.

Palm last year released a new operating system, WebOS, that now runs on two phone models. But amid tough competition from Apple's iPhone and Google's Android phones, Palm struggled to sell the phones. During its last earnings call, Palm said it had a large inventory of phones that hadn't yet sold and so future earnings would be lower than expected.

The acquisition should provide a much needed infusion of cash to maintain development of Palm's technologies. "The focus now goes from financials to what the devices can actually do," said Chris Hazelton, an analyst at the 451 Group.

Palm's OS and hardware are solid, he said, but a series of missteps and bad timing has left the company badly needing a backer. The new phones were introduced after the iPhone already had significant traction and Android devices were on the market. "Then [Palm] went with the wrong carrier. If they'd gone with Verizon and launched within days or weeks or even a month or two after their first announcement, it would have been good for them," Hazelton said.

Instead, Palm launched with Sprint, which has been blamed for failing to adequately promote the Pre, the first handset with the new operating system. Palm announced the new software in January last year and began offering the phones in June.

Hazelton expects HP to retain the Palm brand, possibly giving the company some autonomy to operate essentially as its own entity. HP sells Windows Mobile phones but has a very small presence in the mobile phone market.

Palm is best known for essentially creating the PDA (personal digital assistant) market, with the iconic Palm Pilot. The company began to lose its footing when the PDA market tapered off and Palm was slow to transition to the smartphone business. The last of its remaining founders, Ed Colligan, left the company last June.

Palm's current CEO, Jon Rubinstein, will stay with the company. He is perhaps best known for his part in developing the iPod for Apple.

Palm and HP have scheduled a 2 p.m. Pacific Time conference call to further discuss the deal.

(More to follow.)

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