Computer giant Hewlett-Packard believes the $1.2 billion it is paying to acquire Palm will accelerate its growth within the $100 billion-plus connected mobile device market. Will the gamble work?

Despite a marketing blitz in conjunction with Sprint, as well as making the Palm Pre and Pixi available on Verizon Wireless, Palm?once the byname for PDAs?was unable to meet expectations. Industry analysts are split over whether or not HP?s backing will help Palm jostle in a brutally competitive smartphone market ruled by Apple, Research In Motion and a growing stable of Android-based devices.

?While it makes sense for HP to gain control over a software platform?webOS?that they can use for a variety of devices including smartphones and tablets, it will be extremely difficult for HP to attract developers to create applications for those devices,? said Charles Golvin, analyst at Forrester Research, Cambridge, MA. ?Why?

?Because those developers are chasing the largest markets, and Palm?s share is dwarfed by RIM, Apple, Android, Symbian and Windows Mobile today and that status is unlikely to change,? he said. ?The good news is that HP made a strong move toward becoming a player in the mobile market.

?The bad news is that it?s the wrong move.?

Palm could be valued for its brand, its intellectual property, its platform or its people. But what will it add to HP?s bottom line?

?HP doesn?t need the Palm brand?the IP helps an existing player, not a new entrant,? Mr. Golvin said. ?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,? he said.

The $1.2 billion transaction has been approved by the HP and Palm boards of directors.

HP?s take
The computer manufactuer believes that the combination of HP?s global scale and financial muscle with Palm?s webOS platform will enhance HP?s ability to participate more aggressively in the fast-growing, highly profitable smartphone and connected mobile device markets.

The deal is based on the assumption that Palm?s webOS will let HP take advantage of features such as multitasking and up-to-date information-sharing across applications.

The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of Palm?s stockholders.

The transaction is expected to close during HP?s third fiscal quarter ending July 31, 2010.

Palm?s current chairman and CEO, Jon Rubinstein, is expected to remain with the company.

Glass half-full
Some analysts agreed with HP?s sunny outlook. One even predicted a partnership between HP and Microsoft.

?I think it's an interesting move and it's a good extension to the HP PC business,? said Bruce Tempkin, founder of the Tempkin Group, Newton, MA. ?While Palm devices have fallen behind Apple and RIM, there's still a lot of evolution in the portable digital device space.

?One of the keys to success will be the software, both in terms of the usability of the device and the availability of relevant applications, he said. ?It might make sense for HP and Microsoft to get together on this.?

Buzz from across the pond
Other analysts discussed the benefits and potential pitfalls of the deal.

"The acquisition of Palm seems to be a good fit for HP?however, it will be interesting to see how the combined organization will operate, particularly as neither HP's Windows Mobile business-focused devices nor Palm's webOS handsets have been particularly successful in the mobile handset market,? said Dave McQueen, principal analyst at Informa Telecoms & Media, London.

?I?m not convinced the Palm devices will add much to HP?s portfolio, due to relatively poor sales and build quality,? he said.

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,? Mr. McQueen said. ?Also, does that mean HP will not make Android smartphones and focus solely on webOS devices?

?This could prove to be a restrictive strategy in the fast-growing smartphone market,? he said.

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," Mr. McQueen said.

Those taking a more optimistic view have noted that Palm does inspire brand loyalty, particularly in North America.

?After several seeming knock-backs from specialist handset manufacturers, HP?s rescue of Palm will be great news for the Palm faithful and undoubtedly the best deal for Palm,? said Tony Cripps, principal analyst at Ovum, London.

?The Palm brand continues to receive a considerable following and goodwill from the North American public and HP is serious about boosting its image and presence in the connected consumer device space,? he said.

As Apple and Google have shown, relationships with application developers are a key to a smartphone?s success.

?WebOS could indeed become a major asset for HP and obviously has scope for use on devices such as tablets?Palm?s engineers and designers clearly put a lot of time and effort into creating a very slick user experience,? Mr. Cripps said. ?However, HP will need to drive traction for webOS among developers if it is to truly capitalize on that potential.

?That may not prove easy?as Ovum?s recent survey of mobile application developers shows, application writers show an overwhelming desire to support three or perhaps four device platforms,? he said.

?With at least that many already dominating the space, HP may have its work cut out proving the revenue-earning potential of webOS devices to developers.?