Industry analysts' reaction to HP's intention to buy Palm for $1.2 billion was mostly mixed as Palm shares surged after yesterday's announcement.
Shares in Palm were trading up more than 24 percent this morning, to $5.27, after HP said it intends to but the creator of the Palm Pre and Pixi smartphones.
The good news is HP made a strong move toward becoming a player in the mobile market, but the bad news is "it's the wrong move," says Forrester Research analyst Charles Golvin. "Palm could be valued for its brand, its intellectual property, its platform, or its people. HP doesn't need the Palm brand; the IP helps an existing player, not a new entrant; we don't think the webOS platform is viable long term in the face of its competition; and HP could sweep up Palm's people individually at a much lower price. HP needs a strong presence in mobile, but Palm doesn't deliver that."
Dave McQueen, principal analyst at Informa Telecoms & Media, says HP's acquisition of Palm seems to be a good fit for HP, although he's not convinced Palm's devices will add much to HP's portfolio due in part to relatively poor sales.
"It appears that HP intends to use webOS in other device types, much as Apple has extended iPhone OSX to the iPad; however, there are still issues with awareness and applications development, which is paramount to success in the smartphone market," McQueen says. "... Distribution is key, as Google recently learned. Traditionally, HP has a very good distribution network that will help channel to market but it will need to work closely with mobile operators, a weakness of Palm's, in order to succeed."
TBR analyst Ken Hyers says the Palm acquisition fills an immediate gap, but the tablet PC market likely is the ultimate driver for the deal. TBR believes HP's decision to purchase Palm was driven by HP's need to fill a gap in its product portfolio that its iPAQ smartphones have been unable to fill.
"As a leading supplier of PCs and office equipment to businesses and enterprises, HP has extensive distribution channels to those market segments," TBR says. "Smartphones are becoming key business tools for workers but HP has failed to penetrate this particular market segment in any meaningful way. Smartphone sales are growing much more rapidly than laptop and PC sales, and the Palm acquisition provides HP a more compelling smartphone product to offer its customers."
The boards of both Palm and HP have OK'd the deal, which is expected to close during HP's fiscal third quarter that ends July 31. The acquisition is still subject to various closing conditions, including regulatory approvals and the approval of Palm's stockholders.
HP's shares were down less than 1 percent this morning, trading at $52.75.