At a Merrill Lynch technology symposium today, Mark Hurd laid out his reasoning behind the purchase of Palm.  To many peoples’ surprise (mine at least), it has nothing to do with Smartphones.  Hurd said:

We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP. The WebOS is one of the two ground-up pieces of software that is built as a web operating environment…We have tens of millions of HP small form factor web-connected devices…Now imagine that being a web-connected environment where now you can get a common look and feel and a common set of services laid against that environment. That is a very value [sic] proposition.

First of all, that news has to be a downer for Palm Pre owners and fans.  I’m not sure if HP plans to keep the smartphone wing of the business open, but saying “We didn’t buy Palm to be in the smartphone business” isn’t exactly what I want to hear when making a decision to purchase a Palm device.  He’s said similar things before but nothing so direct.

The same goes for Palm developers, though the “tens of millions of Web Connected devices” that HP may be offering up  may be enticing.

I am assuming here that when Hurd says “The WebOS is one of the two ground-up pieces of software that is built as a web operating environment” he means the other is ChromeOS.  Technically he could also mean the iPhoneOS as well.  But when most people think Web, they think ChromeOS.

Both Palm’s webOS and ChromeOS are based on Linux but modified heavily to work efficiently in small devices.  Apple’s (AAPL) iPhone OS is based on its desktop OSX which, in turn is based on BSD.

When I think about the move, it now makes a lot of sense.  Hurd is an extremely smart guy and he’s done a fantastic job of running HP (HP) since he took over from Carly Fiorina.

These monster companies that HP sells tens of thousands of PCs to aren’t going to want PCs in the very near future.  They are going to want devices like Apple’s iPad and Netbooks and desktops running stripped down browser OS devices where Google’s (GOOG) ChromeOS will be very competitive.

HP  also sells a lot of devices directly to consumers.  HP sees the success of Apple’s (AAPL) iPad and knows this device category is opening up in a big way and poses a threat to not just netbooks but also laptops and desktops as well.

Palm’s $1.2 billion dollar purchase price buys HP control over the OS that goes on their devices and gives them the kind of integration innovation that Apple has on the iPad.

Microsoft’s (MSFT) Steve Ballmer is said to have let go two of their big mobile devices executives on the news that HP bought Palm and would no longer be building mobile devices based on Microsoft’s operating systems.   This news backs that theory up in a big way.

Update: An HP spokesperson issued the following statement:

When we look at the market, we see an array of interconnected devices, including tablets, printers, and of course, smartphones.  We believe webOS can become the backbone for many of HP’s small form factor devices, and we expect to expand webOS’s footprint beyond just the smartphone market, all while leveraging our financial strength, scale, and global reach to grow in smartphones.”