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HP's confounding call to build more TouchPads likely due to obligations

post #1 of 48
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With Hewlett-Packard estimated to lose $200 for each TouchPad it sells at a fire sale price of $99, the company's head-scratching decision to resume production of the failed tablet is likely a result of agreements made with component suppliers.

Analyst Shaw Wu with Sterne Agee said in a note to investors on Wednesday that HP's move is both "surprising and confusing," given that the company recently announced it would discontinue webOS-based hardware, including the TouchPad and Pre smartphones. Originally billed as an iPad competitor, the TouchPad was axed after just six weeks on the market.

Wu has calculated a cost of $220 in components and $80 in operating expenses for each TouchPad that HP builds. At a discounted price of just $99, that would mean that the company is losing about $200 per unit.

"While the company is stating it is doing so to satisfy stronger than expected demand, our checks with supply chain sources indicate another reason may be to fulfill commitments to component suppliers and manufacturing partners," he said.

"This makes sense as it is not in HPQ's interest to alienate the supply chain base and the company may not lose as much money as it is bringing in some revenue as opposed to taking a full write-down on commitments with no revenue."

Wu's sources reportedly told him that there were plans to build between 500,000 and 1 million TouchPad units. It is unknown how many were previously made, or how many more HP plans to produce.

Having a larger install base of TouchPad and webOS devices could theoretically increase the value of webOS, should HP consider selling the operating system, Wu said. He sees Samsung, Research in Motion, HTC, Amazon, FaceBook, Sony and Microsoft all as potential buyers.



This week, Samsung was singled out in a rumor that said the company may be interested in buying webOS from HP. The company is allegedly interested in competing more directly with Apple's integrated hardware-software approach, and obtaining webOS could allow it to move away from Google's Android platform.

HP acquired Palm and webOS in 2010 for $1.2 billion. The company initially planned to add webOS to Windows PCs, but those ambitious plans were scrapped this month, when the company announced it will instead focus on higher margin software and services.

Executives with HP indicated this week that they could revive the TouchPad at some point in the future, as the company looks to spin off or potentially sell its PC division. The company also said it would build "one last run" of TouchPad units to "meet unfulfilled demand," as consumers rushed to take advantage of the $99 clearance price.
post #2 of 48
Wouldn't it be cheaper/less effort to pay off their suppliers, or if they plan to spin off or sell their PC manufacturing business, include the obligation to suppliers as a debt? I mean, if they can't sell the TouchPad at above their BOM, they're still losing money.

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post #3 of 48
I bought a touchpad for $99 just because it was so cheap, possibly can run Android in the future, and because I expect to use it for nothing more than a photo album, web browser and email client. There is this one side of me that knows if the touchpad proves to be any good at all, it only drive me to get an iPad for everything else it offers over competing tablets. I just hope this is the case with all the rest of the touchpad buyers!
post #4 of 48
Quote:
Originally Posted by Suddenly Newton View Post

Wouldn't it be cheaper/less effort to pay off their suppliers, or if they plan to spin off or sell their PC manufacturing business, include the obligation to suppliers as a debt? I mean, if they can't sell the TouchPad at above their BOM, they're still losing money.

If they are obligated to pay $220 in component costs for a certain fixed number anyway, they might as well make the $100 on whatever they can. The loss is lower, no?

Coming on the heels of the weird PC division decision (spinoff? sale? when? why? to whom?) it smacks of such a poorly thought-out and hastily implemented set of decisions, that it makes you wonder about the quality of the CEO and the board. The latter, of course, has repeatedly messed-up, it would seem - e.g., the spying scandal, the Mark Hurd scandal.

I am truly surprised that large shareholders are not taking them to the woodshed.
post #5 of 48
Quote:
Originally Posted by anantksundaram View Post

If they are obligated to pay $220 in component costs for a certain fixed number anyway, they might as well make the $100 on whatever they can. The loss is lower, no?

Plus if a good portion of components were already paid for and shipped to the manufacturing plant they are already out the money for those parts and make also incur a hefty fee for paying the manufacturing plant for disposing of components they no longer wish to use.
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post #6 of 48
They would have sold them all at $199, it was an idiot decision to just dump them at $99. Hell, at $299 they would have cleared them out. This is why some major commentators have been calling it corporate suicide.

You know what - they could have charged to pre-install some apps, like PCs have apps pre-installed - that would have given them even less of a loss. Or adverts - like the ad-supported Kindle.

The other potential reason is that they have a purchaser lined up for WebOS / Palm, but that that purchaser wants an established market of (random figure) 1 million devices before they'll bite, so they're bumping the market figures up to get a sale.
post #7 of 48
Duh. That's the first thing I thought.
post #8 of 48
So, if we're calling the cost of a touchpad at $300, why didn't they do the smart thing to begin with and sell this thing for $400. With HP's economies of scale the estimate is probably too high (but then added distribution costs probably mean it's about right). Seems the new CEO really didn't want this to succeed. A shame too.
post #9 of 48
I didn't have any webOS devices prior to this, but was always intrigued by it. I heard about the fire sale and got two of them for my kids, mostly so they would stop using my iPad. Now I find myself choosing the touchpad over the ipad when grabbing a tablet. Sure, iOS can't be beat when it comes to apps, but I generally used my iPad for twitter, FB, email, and web browsing. The multitasking on webOS makes for a much nicer experience than iOS.

I'm an iOS developer, so for me to want to use the toughpad over an iOS device really says something...
post #10 of 48
Is this an HP version of supply management?
post #11 of 48
"Confounding," "Head scratching" really? Yet the article states specifically why this is happening so it really isn't either of those things is it?

Plus the so called "analyst" seems to ignore the fact that when HP announced this final run that they specifically said they may not be sold for the same $99 price. Which leads to another important reason why HP may be doing this. They may want to test demand at a higher price point, likely between $199-$299.

HP may be pondering the idea of selling these at cost, or a slight loss to expand the market and keep the product going. While unlikely, it is a possibility. Plus, the more units that are in consumers hands, the more they could get for WebOS should they decide to sell or license it.

-kpluck

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post #12 of 48
Quote:
Originally Posted by Robodude View Post

So, if we're calling the cost of a touchpad at $300, why didn't they do the smart thing to begin with and sell this thing for $400. With HP's economies of scale the estimate is probably too high (but then added distribution costs probably mean it's about right). Seems the new CEO really didn't want this to succeed. A shame too.

Agreed. You'd think with HP's PC profit margins only around 5%, they would have started this out priced lower. We all know that, for most people, price is ALL that matters.
post #13 of 48
So they killed off the WebOS devices without first checking if they have any commitments or obligations with respect to the devices?
post #14 of 48
Quote:
Originally Posted by OriginalG View Post

I bought a touchpad for $99 just because it was so cheap, possibly can run Android in the future, and because I expect to use it for nothing more than a photo album, web browser and email client. There is this one side of me that knows if the touchpad proves to be any good at all, it only drive me to get an iPad for everything else it offers over competing tablets. I just hope this is the case with all the rest of the touchpad buyers!

Don't take this personally because I honestly don't mean it to be insulting, but I cannot get my head around the logic of people like you and others buying these things at any price. I wouldn't pay $10 for a Touchpad because I know it's a dead-end and failed in the market and would probably just collect dust. I just don't understand the thinking of jumping on a failed product because it's suddenly cheaper than it was a week ago.

Way back in the 90s when Dennis Miller was still funny, he had a great joke in his stand-up routine that sums this up. "Don't you just love cheap clothing stores that give you 2-for-1 sales? Hey folks, two of sh*t is sh*t. If they really want to f*ck you, they'll give you 3."

Sums up exactly how I feel about the Touchpad at $99. I've got better things to spend a hundred bucks on and I just don't get the frenzy to snap these things up.
post #15 of 48
Having been in manufacturing (Quality Assurance), I know that some of the product has poor quality, fails too soon after getting into users hands or is made with shoddy components. It's a fact of life in manufacturing. Normally the company selling to the customer wants to have a good image and reputation (so the customer comes back for more). Now that HP "has to" make many more TouchPads and is about to spin off the responsibility for them to some other company or just dump the whole business, it has no reason to be very concerned about the quality or reliability of the product made (and bought by you). In fact, they may have little motivation to be at all concerned because they will never again have to address any problems that result from selling "garbage" product.

Further, the suppliers have little motivation to provide high quality components. Maybe they want to get rid of the poor quality components. {They have a committed buyer of their parts and little requirement to replace defective parts.}

So, don't expect anything but the very least quality in your purchase of a new made TouchPad as HP and its suppliers are only required to meet minimal quality requirements in any part of this process.
post #16 of 48
I did the same thing. 2 for my kids for Christmas. They don't care about the os, apps, speed, multitasking or battery life. They want to surf the web and play games on kids websites, most of which use Flash. The Touchpads didn't cost me a fortune and the kids will leave my iMac alone.

Quote:
Originally Posted by jhyson View Post

I didn't have any webOS devices prior to this, but was always intrigued by it. I heard about the fire sale and got two of them for my kids, mostly so they would stop using my iPad. Now I find myself choosing the touchpad over the ipad when grabbing a tablet. Sure, iOS can't be beat when it comes to apps, but I generally used my iPad for twitter, FB, email, and web browsing. The multitasking on webOS makes for a much nicer experience than iOS.

I'm an iOS developer, so for me to want to use the toughpad over an iOS device really says something...
post #17 of 48
Quote:
Originally Posted by msuberly View Post

I did the same thing. 2 for my kids for Christmas. They don't care about the os, apps, speed, multitasking or battery life. They want to surf the web and play games on kids websites, most of which use Flash. The Touchpads didn't cost me a fortune and the kids will leave my iMac alone.

Exactly. A $100 Web-browsing tablet is a great deal (especially if it'll play those darn Flash game). If I can never buy a single app for it and it dies in 2 or 3 years it's still a good deal. Too bad for HP that it costs a lot more than $100 to make.
post #18 of 48
The more the merrier. I wonder what the price will be for the remaining run of Touchpads. They probably won't have the same low prices. HP will experiment to see just how high they can go and still get sales. They will probably try $250 and $299 at first. If they don't sell then they'll drop from there.

Were there enough people getting Touchpads and falling in love with them to create a new demand at a higher price? If so the word of mouth could justify the higher price.
post #19 of 48
HP's losses selling at 99 bucks are greater than $200. HP doesn't get all the $99. Best ins' t a charity and isn't t doing this for free. Their usual take is 50% isn't it?

Sure, they might have got away with $199, but much more, I don't know. But are they tied to this double digit pricing now? People do have memories.

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post #20 of 48
It's my opinion that this whole thing was just a way for HP to make headlines... and then BAM Hp Touchpads for everyone...
Their marketers must have known that webOS's main problem was with it's mindshare, now it has that...
post #21 of 48
Quote:
Originally Posted by inkswamp View Post

Don't take this personally because I honestly don't mean it to be insulting, but I cannot get my head around the logic of people like you and others buying these things at any price. I wouldn't pay $10 for a Touchpad because I know it's a dead-end and failed in the market and would probably just collect dust. I just don't understand the thinking of jumping on a failed product because it's suddenly cheaper than it was a week ago.

Way back in the 90s when Dennis Miller was still funny, he had a great joke in his stand-up routine that sums this up. "Don't you just love cheap clothing stores that give you 2-for-1 sales? Hey folks, two of sh*t is sh*t. If they really want to f*ck you, they'll give you 3."

Sums up exactly how I feel about the Touchpad at $99. I've got better things to spend a hundred bucks on and I just don't get the frenzy to snap these things up.

You can put Android on it.

Other than that, I don't understand why anyone should buy it. No one is going to make apps for WebOS. At least not anymore.
post #22 of 48
Quote:
Originally Posted by inkswamp View Post

Don't take this personally because I honestly don't mean it to be insulting, but I cannot get my head around the logic of people like you and others buying these things at any price. I wouldn't pay $10 for a Touchpad because I know it's a dead-end and failed in the market and would probably just collect dust. I just don't understand the thinking of jumping on a failed product because it's suddenly cheaper than it was a week ago.

Way back in the 90s when Dennis Miller was still funny, he had a great joke in his stand-up routine that sums this up. "Don't you just love cheap clothing stores that give you 2-for-1 sales? Hey folks, two of sh*t is sh*t. If they really want to f*ck you, they'll give you 3."

Sums up exactly how I feel about the Touchpad at $99. I've got better things to spend a hundred bucks on and I just don't get the frenzy to snap these things up.

Again, i only expect it to do very few things well. Can I get any other kind of computer that has a decent sized screen with the same battery life (~8:33 real usage from Engadget), that I can do email, web surf and show pics to the grandparents on? In the realm of my intended use, I don't think this thing can be beat.
post #23 of 48
It made total sense to buy as many of these at $99 as you were able to. The 16gb version is going for anywhere between $225-290 on eBay and easily $200 or more on Craigslist. Get 5 and sell them for enough to get an iPad for free.

The one I was able to get will allow my daughter to watch Sesame Street and Dora without the risk of her breaking the iPad.
post #24 of 48
For God's sake, this is also starting to look like this:

http://www.youtube.com/watch?v=YMNnZ5TRHsM

(About .07 seconds in).
post #25 of 48
Quote:
Originally Posted by Elian Gonzalez View Post

For God's sake, this is also starting to look like this:

http://www.youtube.com/watch?v=YMNnZ5TRHsM

(About .07 seconds in).

lol!
post #26 of 48
Quote:
Originally Posted by kpluck View Post

Plus the so called "analyst" seems to ignore the fact that when HP announced this final run that they specifically said they may not be sold for the same $99 price. Which leads to another important reason why HP may be doing this. They may want to test demand at a higher price point, likely between $199-$299.-kpluck

Well, that would be a problem. Because HP has basically killed webOS. I know, I know, they may license it out or sell it. But, developers aren't going to put energy into this platform. Without an ecosystem, it's dead. HP could have lowered the price slowly to find a good sell point, but they screwed themselves by going straight to $99. At $199+ these puppies are going to sit on the shelve because everyone expects it to drop.
post #27 of 48
Quote:
Originally Posted by Smallwheels View Post

The more the merrier. I wonder what the price will be for the remaining run of Touchpads. They probably won't have the same low prices. HP will experiment to see just how high they can go and still get sales. They will probably try $250 and $299 at first. If they don't sell then they'll drop from there.

Were there enough people getting Touchpads and falling in love with them to create a new demand at a higher price? If so the word of mouth could justify the higher price.

This is just plain dumb. HP has already set the price for the TouchPad at $99.00. No one in his/her right mind will pay more.

Let us not forget that this is not a fixed-function electronic device. It is soft programmable. The thing about programmed functions is that they have bugs. They also become obsolete. For example, one of my favorite TV stations recently abandoned its iOS app for a different iOS app. Who will update the buggy apps. The abandoned apps cannot be replaced. There won't even be a place to download apps.

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post #28 of 48
Quote:
Originally Posted by Mr. Me View Post

This is just plain dumb. HP has already set the price for the TouchPad at $99.00. No one in his/her right mind will pay more.

Wrong. Huge numbers are being sold on eBay for well over $200. That's the price the market has determined them to be worth.
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post #29 of 48
Quote:
Originally Posted by Elian Gonzalez View Post

For God's sake, this is also starting to look like this:

http://www.youtube.com/watch?v=YMNnZ5TRHsM

(About .07 seconds in).

Don't you mean about 7 sec in?

Don't forget to watch till about 48 sec in to see the final fate of HP and the TouchPad.
post #30 of 48
I think HP found a magical price point, judging by the huge demand in the tablet when it was selling for cheap.

If they could reduce/simplify interior components while keeping the exterior fit and finish, they could potentially sell a ton.


Oh and btw I tried to find of the $99/$149 models and couldn't get one. Was sold out everywhere I visited and not available online.
post #31 of 48
Quote:
Originally Posted by Robodude View Post

So, if we're calling the cost of a touchpad at $300, why didn't they do the smart thing to begin with and sell this thing for $400. With HP's economies of scale the estimate is probably too high (but then added distribution costs probably mean it's about right).

They did lower the price permanently to $400 about two weeks before they killed it.
post #32 of 48
Quote:
Originally Posted by inkswamp View Post

Don't take this personally because I honestly don't mean it to be insulting, but I cannot get my head around the logic of people like you and others buying these things at any price. I wouldn't pay $10 for a Touchpad because I know it's a dead-end and failed in the market and would probably just collect dust. I just don't understand the thinking of jumping on a failed product because it's suddenly cheaper than it was a week ago.

You'd be an idiot to buy a Kindle over this with this being so much cheaper and more functional. If you just realize that it will make the cheapest ebook reader with the most functionality then you got a great deal. I was going to buy one for my niece because she's wanting a Kindle, but for $50 less, I could get this and she could read her Kindle books AND do all the other stuff the TouchPad can do out of the box.

Unless I misunderstood, this didn't stop working after HP decided to not support it anymore. Your Kindle Reader will still work, your email will still work, your web browser will still work, and whatever else the device comes with will all continue to work.

So yeah, it's pretty easy to see why this was so popular at $99. If they sell more at $99 I'll be the first in line. At $199, not so much. I'll just get them Kindles (iPad is a little too expensive for a gift for nieces and nephews .
post #33 of 48
Quote:
Originally Posted by Doctor David View Post

Is this an HP version of supply management?

...This just in...

HP in negotiations to simultaneously enter two electronics marketplaces...

Today, HP announced that they have reached preliminary agreement to purchase RIM's Tablet business and Levono's PC business.. Film at 11.
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post #34 of 48
Quote:
Originally Posted by jragosta View Post

Wrong. Huge numbers are being sold on eBay for well over $200. That's the price the market has determined them to be worth.

How is this evidence that any of the people paying $200 for those TouchPads on eBay are in their right minds?
post #35 of 48
The WebOS / TouchPad fiasco is such a unique situation that speculating about their future is almost certain to bite you in the ass. A lot of people are buying TouchPads for $99 not expecting much, but end up really enjoying the OS. A community of WebOS afficinados already exists, and they're not going to just throw in the towel overnight. Now you've got a huge batch of geeks getting them, many of whom might not have iPads saying, "Hey, this isn't bad but if I could just do this . . ." And so the community begins to grow.

Before Jobs came to Apple it's not like NeXTSTEP looked like it had a bright future, either. All the ingredients for something really unique are present.
post #36 of 48
Quote:
Originally Posted by inkswamp View Post

Don't take this personally because I honestly don't mean it to be insulting, but I cannot get my head around the logic of people like you and others buying these things at any price. I wouldn't pay $10 for a Touchpad because I know it's a dead-end and failed in the market and would probably just collect dust. I just don't understand the thinking of jumping on a failed product because it's suddenly cheaper than it was a week ago.

Way back in the 90s when Dennis Miller was still funny, he had a great joke in his stand-up routine that sums this up. "Don't you just love cheap clothing stores that give you 2-for-1 sales? Hey folks, two of sh*t is sh*t. If they really want to f*ck you, they'll give you 3."

Sums up exactly how I feel about the Touchpad at $99. I've got better things to spend a hundred bucks on and I just don't get the frenzy to snap these things up.

It's called 'human nature'. The art of the deal. It works very well in supermarkets and department stores. Somehow, I always thought it worked mainly on women, but I guess that's because they're the ones doing most of the shopping. A shopper might pass over something they don't really need if they consider the price too high. Lower the price considerably and all of a sudden, BOOM, they've figured out a need for it. It's just too good to pass up on. Nobody wants to miss out on a 'deal' because then you reason you're in a better position than the person who misses it. The shoppers will all be fighting over this sudden 'deal' whether they really want it or not. There are plenty of consumers that are immune to price drops. They figure if they don't need it at the higher price, then they also don't need it a lower price.

I think it also has to do with how much disposable income a person has. I only know that if I want a Porsche Boxster, nothing will persuade me to buy a Kia Sonata at any price and I'd probably refuse it even if it was for free. Some people could easily rationalize the switch and say they could use the money for something else or the Kia Sonata is actually more practical and so forth.

I think it's mainly the tech-heads that are buying the $99 TouchPad because they just like to play with electronic toys but they say they're doing it for some other reason. The most amusing excuse I've heard is that the TouchPad may be used to run Android OS as if that's some real benefit. Is the TouchPad better than the more expensive Kindle? Probably, so why not go for what was a $500 device. It's probably of better quality than a Kindle, for sure. The only thing is that if the TouchPad breaks, who fixes it? Are parts even available for it? Give it to your son or daughter and they break it, kiss the $99 goodbye. I guess the bargain hunter rationalizes that as a justifiable loss.

Consumers buy what they buy for whatever reasons and that's all there is to it. I only concern myself with my own reasons for buying things but I'll admit that I've found this near giveaway sale of the TouchPad very interesting since this sort of deal doesn't happen very often that I'm aware of. I certainly don't want it for even $99 since I'd rather put the money towards something more expensive of higher quality with customer support. I never try to buy something on the cheap because I reason that you get what you pay for most of the time. It may be my loss for missing the TouchPad: Bargain of the Century but I can live with it. HP sure it getting a lot of press from this TouchPad deal, so it may benefit them for some strategic WebOS licensing deal.
post #37 of 48
Quote:
Originally Posted by alienzed View Post

It's my opinion that this whole thing was just a way for HP to make headlines... and then BAM Hp Touchpads for everyone...
Their marketers must have known that webOS's main problem was with it's mindshare, now it has that...

"Making headlines" this way is something HP wants??

One has to wonder what kind of CEO this Apotheker guy is. It sounds like he gave the order to kill the TouchPad unilaterally without consulting anyone else in the organization, hence the huge number of stumbles day-to-day in carrying out his imperative. A CEO can't think of all the ramifications of everything - which is why the smart ones know when to draw on the advice of a few trusted colleagues. One thing this sorry scenario lacks is smarts.

If the TouchPad episode is a window into how HP is being run these days, don't count it as the last embarrassing and costly misstep. Stay tuned. More management SNAFUs may be in the offing.

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post #39 of 48
Deleted by the author. Moderator solved the problem, thanks.

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post #40 of 48
Quote:
Originally Posted by Mr. Me View Post

How is this evidence that any of the people paying $200 for those TouchPads on eBay are in their right minds?

I'm curious, did Adam Smith say anything about individuals being in their right minds to make a market work? It's been a long time since I've read his works.
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