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Palm purchase a risky move for HP, analysts say

WebOS-based systems from HP would face intense smartphone, tablet competition

April 29, 2010 11:29 AM ET

Computerworld - It's no sure bet that Hewlett-Packard's $1.2 billion purchase of Palm Inc. will be successful, analysts say, citing intense competition for smartphones and the 12 months it would take for HP to build a WebOS tablet to compete against the iPad.

A team of five IDC analysts said HP has only a one in four chance that the acquisition will prove a success. In the event that the acquisiton proves successful, though, HP's bet will pay off 20 times, they added in an IDC research note.

"Even with a deep-pocketed parent, Palm still faces formidable headwinds as it attempts to build a presence in the smartphone space," the IDC team wrote, noting especially how strong the Android mobile OS will be by 2013, when it projects it to be second in the worldwide market after Symbian. An HP-Palm WebOS-based smartphone would also face Apple's popular iPhone device.

Ken Dulaney, an analyst at Gartner Inc. also sees the Palm acquisition as risky for HP.

First off, he noted, "Palm stockholders get more value than I thought [Palm was worth]. For HP, they get a smartphone business in a box. But it's by no means a sure bet. There is a lot do."

Dulaney said that even though Palm's WebOS is a solid mobile operating system, it faces strong competition from "big players with many models." Dulaney and the IDC research team also noted that in addition to competing against iPhone, BlackBerry and Android devices, HP must battle to attract independent developers to build WebOS applications in addition to or rather than apps for more popular operating systems like iPhone, Symbian and Android.

"There are so many [companies] after developers [so it's] a big challenge," Dulaney said. "I'm not sure that HP has enough clout today to get to them."

Nokia, the biggest maker of mobile phones in the world, even open-sourced its Symbian OS primarily to get more developers interested in making apps for it, he noted.

The IDC analysts added that Palm "has proven unsuccessful in gaining widespread support the WebOS platform amongst developers so far" -- less than 4,000 applications have been developed for WebOS compared to 150,000-plus available for the iPhone through Apple's App Store. If the Palm acquisition is completed, HP will have to invest heavily to gain significantly more developer support, the IDC analysts said.

HP expects the deal to close by July 31.

Jack Gold, an analyst at J. Gold Associates, expressed mild reservations about the deal, but added that HP needed a WebOS product to compete in the smartphone market. In addition, HP benefits from having many former Palm executives already working at HP, including Todd Bradley, head of HP's Personal Systems Group, he added.

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