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

Posted:
in iPad edited January 2014
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.
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Comments

  • Reply 1 of 47
    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.
  • Reply 2 of 47
    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!
  • Reply 3 of 47
    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.
  • Reply 4 of 47
    solipsismsolipsism Posts: 25,726member
    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.
  • Reply 5 of 47
    hattighattig Posts: 830member
    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.
  • Reply 6 of 47
    Duh. That's the first thing I thought.
  • Reply 7 of 47
    roboduderobodude Posts: 273member
    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.
  • Reply 8 of 47
    jhysonjhyson Posts: 11member
    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...
  • Reply 9 of 47
    Is this an HP version of supply management?
  • Reply 10 of 47
    kpluckkpluck Posts: 500member
    "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
  • Reply 11 of 47
    jhysonjhyson Posts: 11member
    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.
  • Reply 12 of 47
    tundraboytundraboy Posts: 1,613member
    So they killed off the WebOS devices without first checking if they have any commitments or obligations with respect to the devices?
  • Reply 13 of 47
    inkswampinkswamp Posts: 337member
    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.
  • Reply 14 of 47
    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.
  • Reply 15 of 47
    msuberlymsuberly Posts: 226member
    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...



  • Reply 16 of 47
    malaxmalax Posts: 1,598member
    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.
  • Reply 17 of 47
    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.
  • Reply 18 of 47
    mhiklmhikl Posts: 471member
    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.
  • Reply 19 of 47
    alienzedalienzed Posts: 393member
    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...
  • Reply 20 of 47
    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.
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