Last week HP announced that it is buying Palm in a $1.2 billion deal. At the time we wrote that HP was buying Palm to reduce its reliance on Microsoft’s Windows operating system, and to turbocharge its efforts in the tablet and smartphone markets.
Here’s another reason for HP’s purchase: HP has successfully diversified its business over the last five years. Its most profitable division, the imaging and printing group, has been stagnant, but thanks to growth in its services and PC businesses, HP has seen operating profits grow.
Buying Palm is another piece of this diversification. It gives HP an opportunity to grow a new line of business in the personal systems group. Smartphones are a rapidly growing business. If HP can take advantage of its scale and distribution, it can tap into that market, further moving away from the flat printing business, which we don’t see exploding with growth ever again.
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