U.S. videoconferencing company Polycom Inc

will buy Hewlett Packard Co's videoconferencing business for $89 million in cash, as it arms itself in its fight for market share against Cisco Systems .

In recent quarters, Polycom has collaborated with companies like Microsoft and IBM to offer products that fuse video and voice better and gain ground against Cisco.

But Microsoft's recent $8.5 billion acquisition of Skype is likely to boost videoconferencing from workers' desktops, posing further risks to companies like Polycom and Logitech .

The deal with HP will allow Polycom to expand its services into the high-growth desktop and mobile video conferencing market, helping it balance its traditionally dedicated terminal heavy business.

This is an interesting turn of events. HP was viewed by investors as a potential acquirer of Polycom. Instead, Polycom is buying out HP in this market, Janney Capital Markets analyst Bill Choi said.

Choi added that HP could be shedding non-core businesses with its new CEO Leo Apotheker.

HP has been revamping some of its troubled businesses under Apotheker, who has sometimes indirectly blamed erstwhile chief Mark Hurd for some of the company's current woes.

Under the agreement, HP will host Polycom's video applications on its mobile operating system, webOS, and also resell Polycom's products through its salesforce.

One thing in common that HP and Polycom have is a competitor, which is Cisco Systems, Polycom CEO Andy Miller told Reuters.

Miller said he did not see Microsoft's Skype buy as a threat because it was focused on consumer markets while Polycom gets most of its business from large companies.

The acquisition of HP's videoconferencing unit will bring Polycom HP's telepresence system Halo, which was originally designed in partnership with Dreamworks Animation Skg Inc .

Polycom has been looking to target smaller businesses and consumers with its videoconferencing applications for mobile devices and plans of a home telepresence system.

A telepresence system is a made up of a suite of applications and products that make videoconferencing more real life.

The acquisition, which is expected to close in the third quarter, will add slightly to earnings, Polycom said in a statement.

Separately, the company said its board approved a two-for-one split of its common stock to be effected in the form of a stock dividend.

We are hoping to attract more retail customers through this stock split, Miller said.

A stock split divides existing shares into multiple shares, making them more affordable for investors.

Shares of Polycom, which were up 1.6 percent at $58.29 in midday trade on Nasdaq, have gained 14 percent since the Pleasanton, California-based company reported first-quarter results on April 21.

(Reporting by Sayantani Ghosh in Bangalore; Editing by Jarshad Kakkrakandy)

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