Who Will Be Most Affected By Hewlett-Packard's Smartphone Comeback?

| About: HP Inc. (HPQ)

Another day, another player entering the smartphone space. This time it's Hewlett-Packard (NYSE:HPQ). According to sources, Su-yin Yam, senior director of HP's consumer business said, "it would be silly for HP not to get back into the smartphone market."

So the race is on for HP. Many are placing bets that the company will introduce devices for the Google (NASDAQ:GOOG) Android platform, but one should not count out the company also offering devices for Microsoft's (NASDAQ:MSFT) WP8.

Depending on what slice of the smartphone market HP attempts to enter, it could have consequences for other players in the space. So the question is, what segment of the smartphone space will HP attempt to conquer?

Thanks to Meg Whitman herself, we have some clues. Last year, Whitman admitted that HP was going to enter the smartphone space. And what did she have to say about HP's strategy?

We ultimately have to offer a smartphone, because the future of computing is smartphones. In developing countries people aren't going to buy HP desktops or laptops. If HP doesn't want to be hosed, it has to deliver a smartphone.

So according to Whitman herself, HP is likely to attempt to crack the developing (emerging) market segment and specifically, the lower end of the space. To be even more specific, HP's strategy will be to enter markets where the average consumer could not afford tablets or PCs.

The question is, how many players are in the lower end of the market, and who will HP compete with? For starters, the answer is not Apple (NASDAQ:AAPL) or BlackBerry (NASDAQ:BBRY) or even Google. While there are many Chinese Android device makers that make $100 smartphones, Google is not one of them. Even Apple, which is expected to announce a lower priced iPhone, has no interest in selling in markets where people can't afford PCs. As for BlackBerry, it is already in many emerging markets. However, it is so entrenched in markets like South Africa and Indonesia, I doubt that another Android smartphone maker will have much effect.

There is only one company left that is big enough and competes in the very lower end of the market in many emerging markets, and that is Nokia (NYSE:NOK). So if HP decides to compete in the same segment, its main competitor will probably be Nokia. Nokia sells millions of devices in many markets around the world in the sub-$100 range. Nokia also sells high-end devices, but not many of them in emerging markets. And if HP also decides to offer WP8 devices, then it will be competing directly with Nokia in more ways than one.

Another question is, can HP actually make any money in this segment of the market? Nokia is having a hard time making any money at all, and it sells tons of lower priced devices all over the world. Even if HP enters the space with a bang, it is very doubtful it will make any money at all. The smartphone space is becoming ever more competitive and judging from Apple's stock, the market is probably expecting even more competition in the future and even lower margins.

I am assuming that if and when HP decides to enter the smartphone space once again, it will spend several billion dollars to do so. Unknown is also if it will attempt to make the devices itself or outsource them to someone else.

Even if HP manages to make any money in the smartphone space, the money it will make will probably be miniscule, and the up-front costs to get in this business will probably not be worth the effort. As a result, I think this endeavor will be a negative for the stock. And since I also don't think HP will revolutionize the space in any way, its entry will not be of any significance.

However, HP's presence will mean even more competition for everyone, and my preliminary conclusion is that its main competitor will probably be Nokia.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.