Smartphone maker Palm 'up for sale'

Struggling smartphone maker Palm may be sold to an Asian company.

On Tuesday Huawei Technologies became the latest of number of companies to be linked to a possible bid for Palm, which has been losing market share to Apple and RIM. Two months ago, Palm talked to Huawei's bankers about a deal, although those talks have stalled, according to a source.

Palm wouldn't comment, but another source said this week the company has hired bankers to explore several options, including a sale of the company.

Huawei said it is “always open” to opportunities that will enhance its business development.

If Palm fits that bill, Huawei could face competition from a handful of other companies in Asia. Various reports suggest inquiries in the region already include a PC maker, a handset developer and a telecommunications provider.

Several North American companies, from computer maker Dell to Blackberry maker RIM, have also been mentioned as potential suitors.

But speculation has started to favour overseas concerns that can use broad manufacturing capabilities to boost the supply of Palm-branded phones, at lower costs, as well as help bankroll the advertising and promotion of new products.

“I think its someone who is on the outside looking in to the US smartphone market, someone who wants to participate but isn't there currently, a Huawei or a Lenovo,” said Avian Securities analyst Matthew Thornton. “It's those types that would be the best fit.”

Despite its challenges, Palm is the number three brand in the biggest growth sector of the mobile phone market, trailing Apple and RIM. In the US, smartphones represented about one-third of new handset volume in the fourth quarter of 2009, according to NPD Group.

And smartphone sales are expected to rise about 38 per cent to 65 million units in the United States and Canada this year, according to research firm Canalys.

Both Huawei, the world's number two telecommunications equipment maker, and Lenovo, a top PC marker that is reportedly looking to bolster its mobile Internet business, could infuse much-needed cash into Palm.

“They can capture the Palm brand, their carrier relationships, (and) the patent portfolio,” said Thornton. “For anyone that is starting from scratch in the US, this deal makes some sense.”

HTC, the number five smartphone maker, has also talked to Palm about a possible acquisition, Taiwan's Economic Daily News said last week. Analysts view ZTE, China's number two  telecommunications equipment maker, as another possible suitor. ZTE could not be reached for comment on Tuesday.

“Huawei and ZTE are potential buyers. It makes sense: they don't have an operating system or a brand, but they have cheap manufacturing costs and money to invest and develop the brand,” said IDC analyst Francisco Jeronimo in London.

“Consumers don't associate Chinese brands with quality products and don't pay a premium for such a mobile phone. Palm would be perfect for them.”

Palm shares have jumped more than 55 per cent in the past week on speculation about a potential sale of the company.

But the stock fell 14.6 per cent to close at $5.16 on Tuesday after analysts suggested the rally made the company too pricey.

“We remain concerned that it may be a 'take-under,' meaning a price that is below its current share price,” Kaufman Bros analyst Shaw Wu said in a note.

“This is due to Palm's large operating losses and likelihood that operating expenses remain high due to investment required to stay competitive in the smartphone space.”

Based on recent deals in the technology sector, Palm could potentially fetch $1.3bn, given its current $1bn market capitalisation and the 30 per cent premium recently paid in tech deals. Analysts, however, doubt bids will reach that level.

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