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HP Buys Palm and Its Cloud Potential for $1B

Buys Failing Company in Attempt to Emerge as a Mobile Power

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HP jumped in Wednesday to save a deteriorating money-losing Palm Inc from collapse, picking up the phone company for $1.2 billion cash, or $5.70 a share, a seemingly dubious ~24% premium on the company's $4.63 closing price.

Concomitant with the news Palm slashed its revenue expectations this quarter from a Wall Street estimate of $165 million to somewhere between $90 million and $100 million because of slack sales, a drop of 42%.

HP will actually wind up paying about a billion dollars for the joint after it takes over Palm's bank account and retires its debt. But it also intends to pour a lot more money into Palm's R&D and into its sales and marketing.

HP wants Palm so it can get serious about the $100 billion connected mobile market that's growing a 20% annual clip. It wants a leadership position, which is a stretch since it's practically not a smartphone player at all.

But it sees Palm and its well-regarded year-old webOS as a platform for mobile cloud services and means to move the widgetry onto other form factors such as tablets, netbooks and whatnot, targeting the stuff at both consumers and business.

HP's global reach, channels and ability to improve Palm's cost structure are supposed to make a difference in its outlook.

The move is an independent step away from both Microsoft, which runs HP's negligible iPaq smartphone, and, say, Google Android with an attempt to establish its own ecosystem.

Call it Apple envy.

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HP calls webOS an "unparalleled" platform and ticks off its virtues: true multitasking; always up-to-date information sharing across applications; gesture-sensitive interface; universal search; integrated personal information and Web Services; application development platform. The platform has collected 2,000 apps and Palm itself reportedly has a significant IP portfolio.

Palm CEO Jonathan Rubinstein, the co-creator of Apple's iPhone, is supposed to stick around. So apparently is the rest of Palm's incumbent management and engineering talent.

The deal belongs to ex-Palm CEO Todd Bradley, now conveniently head of HP's Personal Systems Group.

HP is not expecting Palm, which is running at a loss, to be accretive before 2012. The deal is supposed to close by the end of July. Elevation Partners is Palm's major backer and should emerge from the adventure whole.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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