HTC Walks Away from Palm Purchase as Lenovo Steps Up

Lenovo logoPalm is having a very hard time in the smartphone market both in the U.S. and abroad. The company is seeing its profits drop and its handsets are failing to sell in the numbers that the company and analysts expect.

The poor sales of its handsets have led the company to step back and look at what it needs to do to ensure profitability and the survival of what was once one of the most popular brands in the industry. Palm is considering all options, including selling the company. Palm reportedly started looking for a buyer earlier this month. One of the early firms that were looking into acquiring Palm was rival smartphone maker HTC.

HTC has passed on the deal after looking at Palm's books. The most likely remaining candidate for the purchase is computer maker Lenovo. Lenovo has a line of handsets that it sells in its home Chinese market, but the Lenovo handset line has no foothold in the U.S. market.

Analyst Lu Chialin from Macquarie Securities in Taipei said, "A most suitable candidate will be a mainland Chinese company. They've got a lot more free cash and don't have the brand presence in the United States, so that will all give them that boost they need."

Reuters reports that its sources in investment banking have confirmed that Lenovo is considering a bid for Palm, but offered no specifics. Lenovo has offered no official statements on its intent to make a bid for Palm, but its stock has risen on the rumor of purchase.

Lenovo is reported to have the cash on hand it would need to purchase Palm if it chooses – at the end of 2009, Lenovo had $2.4 billion in cash. Palm is reportedly looking for about $1.3 billion from suitors. While the possibility of an outright sale is on the table at Palm, the company also has other plans. One of the possibilities would be to license its webOS to other companies to use on their smartphones.

Palm may also simply choose to continue as an independent company. Financial Times reports that Palm CEO Jon Rubinstein believes that Palm can continue and survive. Rubinstein says he is "bullish" on the long-term prospects of Palm. He stated, "I believe Palm can survive as an independent company. We have a plan that gets us to profitability."

The FT reports that Rubinstein points out that Palm had $592 million gross cash position at the end of Q3. It would take almost all of that money to get palm through until it can return to profitability. Analysts believe that Palm won’t reach break-even until May of 2012 and by that point it will have spent $534 million of its cash reserves.

Palm is working on a new generation of handsets that it hopes will fare better on the market than its current Pre and Pixi devices. Rubinstein said, "[Palm is working] fast and furious on new handsets." Analysts at RBC Capital markets told the FT that Palm could receive bids as high as $2 to $3 billion considering it has a market cap of $820 million.

Source: DailyTech

Tags: HTC, Lenovo, mobile phones, Palm

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