Is Hewlett-Packard Reentering the Smartphone Market?

Hewlett-Packard (NYSE: HPQ  ) , still looking for ways to boost its sagging top-line performance, is now considering a new line of large-screen smartphones. After having a tough time during its initial foray into the smartphone market, some analysts are questioning the company's ability to acquire significant market share. However, with plenty of cash to throw at the venture, HP might be in a good position to tackle the rising demand for cheap smartphones and phablets, especially in Asia.

Hardware turning around?
Interestingly, HP's latest earnings report showed a stronger performance from its hardware division than its software and enterprise service segments. Personal systems revenue was down 3% overall, with notebooks up around 3%. Printing sales declined only 1%, with total hardware units up a healthy 6%. This compares favorably to a 9% decline in revenue for the enterprise services division and another 9% decline in software revenue.

For the full year, the figures are a bit different. Personal system units were down 8%, and printing total hardware units declined by 4%. Consumer revenue led the decline, down a hefty 19%. However, printing commercial hardware units were up 2% for the year. Enterprise services, enterprise group, and software all posted single-digit declines in revenue.

So, presumably in order to address the dramatic drop in consumer personal systems sales, the company plans to roll out several low-cost phablet options geared at emerging markets such as China, India, and Indonesia. Reportedly, the mobile devices will cost between $200 and $250 off-contract and will have screen sizes of six and seven inches. Demand is high for these types of devices in emerging markets, although HP may have a tough time catching up to Samsung (NASDAQOTH: SSNLF  ) .

Surging market
The market which HP is trying to break into is largely dominated by Samsung, although the Korean company's market share is being eroded by a host of cheaper Chinese producers. Samsung saw its market share for the Galaxy Note decrease from 90% in the fourth quarter of 2011 to "only" 50% in the second quarter of this year.

The rise of phablets has been explosive. An IDC report showed that phablets overtook the PC and tablet device categories in the Asia/Pacific region. These growth numbers are fairly serious. Phablet shipments increased by 100% quarter over quarter, and a spectacular 620% year over year. These formidable growth figures may indicate there is room for new players to enter the market.

Apple (NASDAQ: AAPL  ) , for its part, recently achieved a large victory in the Asian smartphone realm. A deal was finally struck with telecom titan China Mobile for the distribution of its iPhones, and the benefits for Apple are immense. Under the terms of the agreement, Apple will gain access to China Mobile's 760 million mobile customers, which according to Forbes represents roughly 10% of a worldwide total. The deal follows one with the Japanese carrier NTT DoCoMo earlier this year, which supplied Apple with access to some 62 million subscribers in a mature wireless market. Clearly, Apple is making waves in Asia.

The bottom line
Hewlett-Packard has decided to restart its smartphone program, one which has achieved little success. However, addressing the need for low-cost phablets in Asia might prove to be a very fruitful one, as the product category is seeing some absolutely fantastic growth figures. While it has a number of serious competitors in the region, most notably smartphone giant Samsung, a solid approach backed by a large amount of cash-on-hand, could lead to some promising gains.

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