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HP could lose $400m on Touchpad price cuts

Opinion Leo's sudden U-turn bleeds money
Mon Aug 22 2011, 17:10
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MAKER OF EXPENSIVE PRINTER INK HP's sudden price cuts on its Touchpad tablets in the US had consumers rejoicing at the $99 and $149 price tags, but could leave HP out of pocket.

Samsung shipped two million Samsung Galaxy Tabs in the first three months after launch. As a huge PC maker with previously high hopes for its WebOS tablets, it is easy to believe that HP shipped at least two million.

Many of HPs Touchpads have now sold for $99, with US retailers promising those who have bought a Touchpad since June that they will be refunded the difference. This is true across US web sites and retailers including Best Buy and HP's online sales web site, although those exclude Amazon.com.

The INQUIRER has heard of price cuts in Canada and Australia, and at the time of writing, the device has been cut to £89 for the 16GB model at Currys and Dixons in the UK.

According to IHS Isuppli, a 16GB Touchpad costs $306 to make, while the 32GB model costs $318.

Therefore, with the sold out Touchpads in the US costing around $99 for the 16GB model and $149 for the 32GB version, HP is losing around $200 on each one, give or take a few dollars.

So let's say HP shipped two million Touchpads. If HP eventually loses $200 on each one, that'll be a loss of $400m.

If the US ends up selling one million of the ill-fated tablets, and Best Buy alone has sold about 270,000 Touchpads up to and including the price reduction, HP could have lost around $200m so far and counting. This isn't ideal for the company that shocked the market last week by announcing it would buy enterprise search firm Autonomy, drop its WebOS devices and look to sell off its PC business.

HP might have a lot of cash, but it is now bleeding money. After buying Palm last year for its smartphone and tablet designs, which now looks to have been a waste of $1.2bn, it is now paying £7.1bn for Autonomy.

The fact that the Touchpad has sold out almost everywhere in the US is mostly down to the low prices. Anyone with any sense is more than happy to fork out $100 or so for a decent tablet, they just won't spend $400 to $700 unless they are getting an Ipad.

To put this into perspective, Apple has sold over 14 million Ipad 2 tablets since it launched that in March and sold around one million in its debut weekend.

HP's Touchpad was almost certainly doomed from the start because its design and build quality didn't come close to those of Apple's Ipad or even Samsung's Galaxy Tab, but hopefully its failure will serve as a cautionary tale for other tablet makers that might think of emulating it.

Meanwhile, a couple of million price conscious tablet buyers have found some reasonably good bargains, and HP CEO Léo Apotheker will be starting his refocusing of HP almost half a billion dollars in the hole. µ

 

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