HP-Palm deal sparks Cisco speculation

Analysts predict that Cisco may respond to $1.2bn deal

HP said Palm’s webOS platform would expand its mobility strategy

HP has reached a definitive agreement to acquire ailing smartphone vendor Palm for $1.2bn (£787m), prompting predictions of a copycat move by arch-rival Cisco.

The transaction, which has been approved by both boards, is expected to close in HP’s quarter to 31 July.

HP said Palm’s webOS platform would expand its mobility strategy.

“The smartphone market is large, profitable and rapidly growing, and companies that can provide an integrated device and experience command a higher share,” said Todd Bradley, executive vice president, Personal Systems Group at HP. “Advances in mobility are offering significant opportunities, and HP intends to be a leader in this market."

In its most recent quarter ending 26 February, NASDAQ-listed Palm reported a GAAP net loss of $22m on revenues of $349.9m. At that time chief executive Jon Rubinstein said the firm’s “recent underperformance has been very disappointing, but the potential for Palm remains strong”.

According to analyst iSuppli, Palm boasts about a 1.5 per cent share of a smartphone market set to swell from 182 million to 247 million units this year.

Some fancied that Cisco would be the one to pick up Palm and the deal has sparked predictions that HP’s bitter rival may respond with a similar move.

Steve Hilton, principal analyst at Analysys Mason, said: “I’d wager $10 that Cisco goes after a handset manufacturer within 12 months. Anyone want to take the bet?”

Hilton pointed out that a handset division would “super-charge” Cisco’s desire to extend networking from the enterprise to the small enterprise to the consumer.

Rubinstein – who is expected to remain with company - said: “We're thrilled by HP's vote of confidence in Palm's technological leadership, which delivered Palm webOS and iconic products such as the Palm Pre.”