HP has announced that it will purchase Palm for about $1.2B in cash, which is about a 30% premium on the company’s market value when it was announced. For Palm, it simply means “survival”, but for HP, this could mean having a shot at controlling its own destiny in a very competitive market. In some sense, this acquisition might provide what Palm has always lacked: cash. The Pre sales have been hampered by a Sprint exclusive that prevented the rapid expansion of the Pre in the market. By the time it reached Europe and Verizon, the customers desire to buy the Pre was gone. The story unfolded like that because Sprint provided a chunk of the funds necessary to design and build the Pre. For HP, getting its hands on Web OS will mean better differentiation than “hardware”.

Clearly, HP is not in a position to compete with HTC on smartphones, let alone Apple. With Web OS, the company will have a unique offering (and patent portfolio!), and it is consistent with HP’s efforts to build an overall HP eco-system. That said, HP will have to prove that they can build cool hardware too – something that has eluded them until now in the handset market. The good news is that Palm won’t die, and that they will get another chance at giving us great smartphones. Will Palm and HP execute? We will know for sure after a couple of generations of products.