Hewlett-Packard (NYSE: HPQ) couldn't sell its webOS-based TouchPad tablet for $499 apiece. It wouldn't even move at $385, more than $100 below the pricing benchmark set by Apple (Nasdaq: AAPL) and its iPad 2.
But when the price dropped to $99 (or $149 for the larger-memory model), customers lined up around the block -- even if the entire product line was officially discontinued that very morning. In fact, would-be customers clamored for more when stores sold out of this deep-discount product very quickly.
So what does HP do? Order up another batch of TouchPads, of course!
According to IHS iSuppli, the darn thing costs at least $306 to make. On top of that, HP promises free shipping on second-run orders from its online store. HP is taking a loss on every unit sold at these prices, but hey -- let's make up in volume what we lose on the margins! Whoever made that genius decision, I want some of what they're smoking.
Meanwhile, enthusiasts have cooked up versions of Linux and Android to run on the TouchPad, squeezing a better-supported lifespan out of the doomed product even if webOS itself dies. I guess there's always demand for cheap, reasonably powerful hardware.
All jokes aside, HP might actually have a plausible reason for this head-scratcher. You see, HP was planning to make more of these things, including a smaller 7-inch version, and reportedly ordered up enough parts to build another 100,000 units.
HP may be pulling out of the consumer hardware business, but it would still be a bad idea to leave a large number of component suppliers stranded with unsold TouchPad parts. The gadget includes chips from industry giants such as Texas Instruments (NYSE: TXN), Qualcomm (Nasdaq: QCOM), and Maxim Integrated Products (Nasdaq: MXIM), and the LG Display (NYSE: LPL) touchscreen is driven by a chipset from Cypress Semiconductor (Nasdaq: CY).
It's safe to assume that many of these suppliers also ship parts for HP's as-yet-unsold computer systems division and the all-important printer segment. Ameliorating the ill will from this drastic move is very important to HP, and probably well worth a couple hundred million dollars of unprofitable tablet sales just to make the issue go away.
Will any of the erstwhile iPad killers ever figure out how to build a competitive product cheaply enough to actually threaten the iPad? HP sure couldn't. Samsung stands a better chance than most, since it makes many of the required parts in-house and could squeeze the build costs that way -- but that hasn't happened yet. Maybe the next version of the Galaxy Tab could do better? Present your own theories in the comments box below.
