Hewlett-Packard Co.'s takeover of Palm Inc. shows that companies may be more interested than before in buying their way into the burgeoning global smartphone market, analysts say.

That's because HP's $1.2 billion US buyout of struggling Palm indicated a desire to jump into this growing market quickly rather than taking the slower road of developing a new device and operating system.

"It (was) unrealistic that HP could sit by and spend years building their own mobile OS while Apple, Google, and Research In Motion charge ahead," wrote Erica Ogg in CNET News, a well-followed industry publication.

HP bought Palm in a cash-and-debt deal worth $5.70 for each share, a 23 per cent premium to the stock's previous close. Hewlett-Packard also assumed the subsidiary's approximately $400 million of long-term debt. (All figures are US.)

Palm devices generally received good technology reviews. (Palm Canada)

The move instantly catapulted Hewlett-Packard into the hot, next-generation mobile-phone market.

Globally, that segment is estimated to be worth approximately $100 billion, but it was an area that Hewlett-Packard had largely shunned. The Palo Alto, Calif., technology giant had opted instead to focus on personal and business computers and laser printers.

With its Palm purchase, however, HP snapped up the 10th largest smartphone brand with 1.5 per cent of the global market, according to technology tracker iSuppli.

And Hewlett-Packard bought its entry ticket to the mobile arena at a much cheaper price than if it had taken the plunge a few months earlier.

"(T)he purchase is a modest risk at establishing a firm position in the fast growing smartphone market," said IDC, a U.S. firm that follows global technology trends, in a commentary on the deal.

Failed potential

Palm was a company already in dire financial straits and looking for a suitor.

The Sunnyvale, Calif.-based pioneer in handheld computing devices essentially failed to convert earlier technology prowess into long-term financial gains.

In January, Palm introduced its Pre device, which technology watchers believed would give Apple Inc.'s then-dominant iPhone a run for its money.

While analysts generally liked the Palm new device, however, buyers shunned the sleek-looking smartphone.

Three-month stock chart for Palm Inc.

The reasons given for Palm's failure varied.

When it launched the Pre, the company announced a deal in which its first phones would be sold exclusively by Sprint Nextel Corp. That arrangement was widely seen as limiting distribution.

In addition, the Pre contained fewer functions for users than other smartphones.

"While (the Pre) is slick and fun to use, it still feels incomplete. That's mainly because there aren't that many third-party apps available for it," said one online review back in early 2009.

Pre's failure to add all sorts of sometimes silly programs hurt the phone, because fun-loving individuals — rather than sober companies — became the most important buyers of the new technology.

Then there was that fascinating — but ultimately creepy — advertising campaign.

Palm wanted to grab a chunk of the untapped market of female users, but tried to do it with ads featuring a Botticelli-like model talking very personally about the device as clouds floated past behind her against a blue sky.

By October, the ad campaign and the agency that thought it up were history, and so was any sales momentum that Pre had.

Financial flop

Worse still, with a hefty push from the global recession, Palm's financials starting tumbling.

In February, the company said its revenue for fiscal 2010 would be "well below" initial forecasts.

"Driving broad consumer adoption of Palm products is taking longer than we anticipated," said Jon Rubinstein, Palm's chairman and chief executive officer, announcing that the company wouldn't reach its sales target of between $1.6 billion and $1.8 billion.

Palm's sales for the prior year topped out at $793 million.

Solvency also became an issue.

Indeed, Palm's total assets had started to shrink, slipping to $1 billion in the fiscal third quarter ended February 2010, down from $1.3 billion in the previous three-month period.

Hewlett-Packard still needs to expand Palm's footprint in next-generation mobile phone market (Paul Sakuma/Associated Press)

Also stuck on a downward trend was Palm's stock price.

In September 2009, the company issued 16 million new common shares at $16.25. Prior to the takeover announcement in April, a Palm share had fallen below $4, a drop of 75 per cent in less than a year.

The falling stock harpooned Palm's ability to raise money, and it also made Palm a relatively cheap takeover target, a factor that played into HP's plans.

HP's next move

Most industry analysts understood HP's financial rationale for buying Palm but were less certain about the enhanced company's ability to expand.

After all, prominent players such as Apple, RIM and Google, with its Android operating system, will continue to develop new applications and marketing strategies for their devices.

Thus, even with Palm, Hewlett-Packard faces a rough ride to expand its presence in smartphones.

"HP needs to move at warp speed to bolster Palm's position, relationships and products, which are heavily under seige by Apple, RIM and others," said the authors of the IDC note.