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Since HP is little more than a brand that is placed on HTC manufactured devices, one cannot say that HP is actually "working" on Microsoft Smartphone device, but it could be that it will start offering one soon:
Please keep in mind: despite having some blurry photo (see above) this still is a rumor and Compaq (that merged with HP in past) and HP have history of having prototypes that leak to public but never become commercially available...
Easily comparable to pictures that I have seen of the SP5, but an HP! It was running WM 5.0 and had a 320x240 screen... wifi, BT 1.2 i believe, 1.3 MP cam, dont know about internal memory, but he did have a 1gb minisd card under the battery.
This is not a big news story because this phone offers nothing special - at least from the first impressions of it. It would have to provide UMTS/HSDPA support or have QWERTY keyboard or offer 802.11g or offer some speedy processor (to handle voice over IP properly)... but if it will be just HP-branded HTC Tornado, then it is not particularly important story. Obviously HP still is one of the biggest computer manufacturers (or rather "vendors") in the world, so having MS Smartphone in their offering would mean that much more enterprises would buy "by the way" also MS Smartphone phones - while they are purchasing server, notebook and desktop computers at HP. In other words: HP releasing MS Smartphone would have more marketing and popularization effect rather than bringing something innovative and something that could really compete with Symbian (that offers already now several UMTS phones, while there is only one UMTS phone powered by Windows Mobile). All in all: we are yet in rumor phase and one photo doesn't prove anything yet, but it looks like HP is committed to Windows Mobile so in the end we may see also MS Smartphone from HP...
Update: obviously this is not just a rumor - more photos (not blurry) are available here.