Palm to Be Bought By Hewlett Packard: Time to Invest in Palm?

An article by Punit    2 Comments

It has long been rumored but investors finally got confirmation this week that Palm would be sold. The only thing that many investors did not know was who was going to buy this company that has fallen from its height of the 1990s. Who bought this company? None other than technology pioneer Hewlett Packard, which paid a hefty sum for this company that helped create the smart phone market as we know it.

In an audio webcast held on April 28, it was confirmed that Hewlett Packard had entered into an agreement to purchase Palm. Palm, which is headquartered out of Sunnyvale, California, was one of the leading companies in the personal digital assistant market during the mid-1990s. The Palm Pilot was what many business employees needed to have, but since the rise of the iPhone and other smart cell phones, Palm has seen its business fall through the years. Palm had attempted to enter the cell phone market with the Treo 270, creating one of the first smart phones in existence. However, Palm was never able to get in on the smart phone market the way Blackberry and Apple were able to.

Palm also released the Palm Pre smart phone in 2009 but by the end of February 2010, the company only controlled a mere 5.4 percent of the smart phone market. While the iPhone is in use with 8.75 million subscribers, the Pre and Pixi Palm smart phones are only being used by 408,000 people. HP and its shareholders are very happy with this purchase, which should be completed by the end of July, because it allows the company to get into the expanding smart phone market.  Under this deal, HP will pay every Palm common share at the value of $5.70. Counting all this and the cash and debt of Palm, the company is valued at about $1.2 billion. HP paid slightly more than that, putting up $1.4 billion to buy the PDA pioneer. Palm shares traded at $4.63 (down from the high one year ago of $18.09) following the announcement while HP saw its shares drop 38 cents to $52.90.

As to whether or not HP will succeed and get into the smart phone market, only time will tell. The competition is very fierce with Motorola releasing 20 new smart phones this year alone. HP is going to try and go against the big boys of the smart phone market. Will they be seen as making a great purchase through paying $1.4 billion for Palm, or will the company be remembered as making a big mistake with the purchase? Time will tell.

On April 28, HP made it official that it was buying Palm for $1.4 billion, roughly $200 million more than the company is valued at. HP is hoping that this will be the big step towards making it into the competitive smart phone market. Will this purchase pay off? The next few years should give a definite answer.

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