HP Says No More TouchPads for You!

And so it ends.

Two months ago, Hewlett-Packard (NYSE: HPQ  ) made headlines (and I'll venture, sent a shiver through Apple's (Nasdaq: AAPL  ) core), when it announced a weekend fire sale on its TouchPad tablet computer: $99 for the base model, free shipping included. Within hours, the company had blown through its entire 350,000-unit inventory. At retailers ranging from Amazon.com (Nasdaq: AMZN  ) to Staples, and everyone in between, consumers formed lines both online and off in hopes of scoring the device. Meanwhile, back at the ranch, HP's own servers crashed, unable to keep up with the crush of demand.

When it was all over, and HP execs had time to count the numbers, it turned out they had sold so many TouchPads that they needed to fire up the production lines for the "discontinued" product, working overtime for two straight months to meet the surge in demand.

This is the end, beautiful friend
Which brings us to today. According to customers who had been wait-listed for TouchPads, HP has begun sending out emails confirming the device's demise:

"As you signed up for updates on the HP TouchPad, we wanted you to know that we are officially out of stock. Some retailers will have some stock available..."

Indeed, last month a small cache of the machines was discovered at Office Depot -- and sold out in minutes. Also, Best Buy is reportedly offering TouchPads for $150 in a bundled offer with purchase of an HP or Compaq PC.

" ...but our online inventory is depleted."

Where to go from here?
And that's all she wrote, folks. Ninety-nine dollars was a great deal for a primo, "new in box" tablet PC, but HP hopes you enjoyed it while it lasted -- because it's not happening again anytime soon. In what I'd call Meg Whitman's first major flub in her one-month tenure as HP CEO, the new company boss announced last week that she is reversing course on the spinoff of HP's core personal computing division. But Whitman stopped short of making the next key promise: to keep the TouchPad in production, build on the tablet's wildfire success, and plow ahead in the fight against Apple.

By halting production, HP is abandoning a near-half-million-unit toehold in the tablet market. Worse, she's about to lose the initiative when Amazon brings its Kindle Fire to market at near-TouchPad prices -- just $199 apiece. What makes this decision all the more curious is HP's announced intention to remain "in the tablet business."

In reversing the PC group spinoff last week, Whitman confirmed her intention to "make a run at this [tablet] business." Problem is, she's starting off at the back of the pack, and with one leg tied behind her back. Abandoning the pole position that HP won with the TouchPad fire sale, the company's doing a reboot and planning to do its next tablet in cooperation with Microsoft (Nasdaq: MSFT  ) and Windows 8. Meanwhile, in a disturbing echo of HP's past indecisiveness, HP told investors last week that it's still considering what to do with webOS but will make no decision for at least a couple months.

Result: No one really knows what HP wants to be when it grows up -- including HP itself.

HP: Hewlett has problems
I have to say, as a would-be HP shareholder, and an actual TouchPad owner, this is all a little frustrating. On one hand, I won't invest in new apps for my new tablet, because HP won't commit to supporting the device. HP has limited both the TouchPad's usefulness ... and the revenue it could reap from selling me apps and upgrades.

As a potential HP investor, neither can I bring myself to "pull the trigger" on this stock with a P/E of six. HP looks cheap, but if it keeps running its business on a combination of fits, starts, and half-measures, I wonder if it can even grow earnings at the 7.6% annual pace that analysts project -- a rate, I might add, that's about 15% slower than the average stock on the Dow Jones Industrial Average (INDEX: ^DJI).

The way forward
A few weeks ago, I published a short note on these pages, encouraging HP to cancel the PC division's spinoff and save the TouchPad as well. (Seems Whitman didn't read that column all the way to the end.) With fingers crossed, though, I'll try this again:

If you're intent on entering the tablet market, HP, then great. The more alternatives, the merrier. And if you're admitting that buying Palm was a mistake, and webOS must die -- well, I told you so, but... OK. That's your call. But please don't abandon the momentum you picked up when you dropped all those lovely TouchPads on the market at $99 a pop.

Instead of orphaning your TouchPads, work a deal with Microsoft. Get them to upgrade TouchPads to Windows 8 for free, and your next tablet offering will have an installed base of half-a-million app buyers right out of the box. The alternative, as you know, is that we'll wipe webOS ourselves eventually, and replace it with Android. Do you really want to push 500,000 potential app buyers in the arms of Google? Well, do you?

Ball's in your court, HP.

Hardware and software, apps and upgrades -- read about one more way HP could make money by making inroads in the smartphone and tablet markets, in the Fool's new -- and free! -- report: "Your credit card may soon be worthless. Here's why..."

Fool contributor Rich Smith owns shares of Google. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 364 out of more than 180,000 members. The Motley Fool has a disclosure policy.

The Motley Fool owns shares of Microsoft, Best Buy, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Amazon.com, Google, Microsoft, and Staples. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Motley Fool newsletter services have recommended writing covered calls in Best Buy.

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Read/Post Comments (6) | Recommend This Article (4)

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  • Report this Comment On October 31, 2011, at 3:21 PM, gslusher wrote:

    "By halting production, HP is abandoning a near-half-million-unit toehold in the tablet market."

    As the Brits might say, "Bollocks." Check eBay. Quite a few of those Touch Pads were apparently bought to be sold for a quick profit (maybe $20-50), rather than to be used.

    The "extra production" was apparently just to exhaust the supplies of parts, which were already paid for. The only additional costs were assembly and distribution, so that made economic sense.

    "Worse, she's about to lose the initiative when Amazon brings its Kindle Fire to market at near-TouchPad prices -- just $199 apiece."

    It's widely estimated that Amazon is losing money on each Kindle Fire--perhaps on each Kindle of any kind. Amazon hopes to sell content--books, movies, TV shows--to make up for that loss. What could HP do?

  • Report this Comment On October 31, 2011, at 3:22 PM, macgregor45 wrote:

    HEWLETT (not Hewitt), has problems, all right.

    But I think the appearance of a competitor's item selling for $99 that cost perhaps $300 to make might have resulted in shivers of laughter running up some spines at Apple, not fear.

    Now this is tricky, but can you estimate the profit(loss) involved in scaling this to several million units? Just off the top of my head, I am thinking it might run close to a large, red number. The kind that makes businesses close.

    Again, first place is held by Apple. Second though 10th is empty, and everyone else is tied for last.

    There's a reason. When you run a race, you should be there for the start. It's hard to catch up a year or two afterwards.

  • Report this Comment On October 31, 2011, at 3:28 PM, ConstableOdo wrote:

    Oh noes! Where are all the cheapskates going to look for tablets now that there are no more TouchPads left? There's still the Kindle Fire, but that's just some small and cheesy 7" display.

  • Report this Comment On October 31, 2011, at 5:07 PM, TMFDitty wrote:

    @gslusher: Like Meg, you stopped one point short of the end. Many people bought TouchPads for resale, yes. And many people ... bought the resold TouchPads. The end users are still there, and a good number of them anted up $200-$250 for the device.

    @macgregor: Seems to me, Apple did a decent job of catching up "a year or two afterwards" in the smartphone market. And it seems to me, Google did a decent job catching up "a year or two" after *that.* The first mover doesn't always stay that way. (RIMM)

    TMFDitty

  • Report this Comment On November 01, 2011, at 1:14 AM, gslusher wrote:

    @TMFDitty:

    The reason TouchPads are sold for $200+ on eBay is because they were discontinued, which gives them a "collectible" cachet, though that probably won't last for long.

    For what it's worth, the original iPhone sold for over $1,000 on eBay for a few months after it came out. The original iPad sold for $800+ on Amazon's marketplace in its few months. (Amazon itself has never sold the iPad or iPhone.) Now, that's a premium over the RETAIL price, not over a fire sale price.

    Could HP sell many new TouchPads for $200? Maybe, but they would probably lose money on every one. That was my second point, which you ignored.

  • Report this Comment On November 01, 2011, at 1:19 AM, TMFDitty wrote:

    Based on the product teardowns I've seen, H-P would certainly lose money on each unit at $200 ea.

    Then again, Amazon loses money, or at best breaks even, on the Kindles it makes. H-P itself makes less profit on its printers, than on the ink sold to fuel them. In a razor-and-blade business model, the real money is made on the blades.

    TMFDitty

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