HTC Backs Out of Palm Buy, Lenovo In?

It's coming down to the wire for Palm. The troubled smartphone maker has lost its most prominent suitor as HTC has backed out of potential acquisition talks. HTC was interested, not so much for the phones as Palm's patent portfolio, but decided against making a bid after reviewing Palm's books, a source with direct knowledge told Reuters.

"There just weren't enough synergies to take the deal forward," the source told Reuters. Huawei, the world's No. 2 wireless telecom equipment maker, also declined to put in a bid. Palm reportedly hired bankers to help it find a buyer earlier this month.

That leaves Lenovo, a company that knows a thing or two about acquiring an American firm. It bought IBM's PC business in 2003. Lenovo is sitting on $2 billion in cash, more than enough to handle Palm's (NASDAQ: PALM) $1 billion market valuation. But the question is whether it would wants to pony up that much money to buy the struggling smartphone provider.

Lenovo has its own phone, the LePhone, about to hit the market. It's an Android 2.1-powered device with a 3.7-inch AMOLED screen with 800x480 resolution, a 1GHz processor and a flip up clamshell design with a keyboard underneath. Lenovo has given no indications about shipping the phone beyond China, but given the size of that market, that's all it might need.

While the press debates and ponders buyers for Palm, CEO Jon Rubinstein has told the Financial Times that Palm doesn't need to be acquired and the company can survive on its own.

"I believe Palm can survive as an independent company," he told the Financial Times. "We have a plan that gets us to profitability." That plan includes "a strong pipeline of products in the future" and possibly licensing its webOS to other vendors.

Calls to Palm for comment were not returned.

But all of the scenarios for Palm look bad, according to Jack Gold, president of market research firm J.Gold Associates. HTC stepping back after reviewing the books was a particularly bad sign.

"I don't think HTC really needed them. My guess is HTC thought 'if we can get them at a good price and get something cumulative, we'll do it.' HTC is also a very fiscally conservative company. They won't go into something if they don't think they can make a buck. The same applies to Lenovo and Huawei. They won't get into a business unless they get real leverage out of it," he told InternetNews.com.

The licensing scenario Rubenstein outlined doesn't work, Gold noted, as there are already enough operating systems on the market and Android does not require a royalty payment, whereas webOS would. And it won't generate royalty income for a while. "New product doesn't come out the door in just a few weeks, it takes months or a year or more," said Gold.

Gold believes Palm at this point is looking for an angel investor -- unlikely since Elevation Partners already bailed it out once – or they aren't cheap enough yet, and maybe buyers are waiting a quarter or two for the company's valuation to drop further.

Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.


acquisition, Lenovo, Palm, HTC, mobile devices