HP to buy Palm for $1.2bn

Hewlett-Packard has agreed to purchase struggling mobile handset maker Palm for $1.2bn.

Hewlett-Packard has agreed to purchase struggling mobile handset maker Palm for $1.2bn.

Palm will be integrated into HP's personal computers business unit and Palm's chief executive Jon Rubinstein is expected to remain with the company, HP said.

The deal will enable HP to step up its mobile device plans to challenge rivals Apple and Microsoft, according to the Wall Street Journal.

HP plans to use Palm's WebOS operating system in other mobile devices, such as touchscreen tablets similar to Apple's iPad.

Palm has been seeking such a deal in the face of weak demand for its latest smartphones, the Palm Pre and Pixi, which it had hoped would help claw back some of the market share it has lost.

Palm's share price is down more than 53% this year and the firm's global market share in smartphones dropped to 1.5% in 2009 from 3.5% in 2005, according to research firm IDC.

Palm's share of the US smartphone market fell to 4.2% in 2009 from 6.5%t in 2008, well behind RIM, whose Blackberry holds 47.8% of the market and Apple, whose iPhone has about 25%, according to Strategy Analytics.

This week Palm warned that revenue in its current quarter would be between $90m to $100m, which is at least $50m below previous forecasts.

The deal will give HP a bigger presence in the smartphone market, which increased by 24% worldwide in 2009, according to research firm Gartner.

HP plans to increase spending on research and development and marketing for Palm products to boost flagging sales, according to the Financial Times.

HP also plans to uses its scale and reach to succeed where Palm failed in persuading the world's top telecoms companies to sell Palm devices.

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