Hewlett Packard (HPQ) hastily exited the tablet market by shuttering its TouchPad during its early phase of its restructuring plan. The company had spent $1.2 billion on Palm's WebOS, which was supposed to give the company a position in mobile tablets and smartphones. Now that HP realizes it still needs to be in this market, the company is choosing the Android operating system to power the Slate 7, a tablet computer. HP is also positioning itself in the budget market, by pricing the tablet for US $170. For shareholders and users, the tablet strategy is unlikely to be a positive catalyst. HP will likely fail to succeed in the tablet market with the Slate 7. As it will be discussed further, the main reasons the tablet strategy will fail are brutal competition and a lack of differentiation.
Tablet Market Background
HP has an opportunity to grow its market share in tablets. Worldwide, tablets less than 8 inches are expected to grow from 27% in 2011 to 57% of the market by 2017:
Worldwide Tablet Market Share by Screen Size Band, 2011 - 2017
8" - 11"
Source: IDC Worldwide Tablet Tracker, May 28, 2013.
The unit volume of tablets is also expected to exceed portable and desktop PCs by 2015:
Data Source: IDC
The Slate 7 is inexpensive because HP left out a GPS and Bluetooth (3.0/4.0). The screen resolution is 1024 x 600, below that of Google's (GOOG) Nexus 7, which is an IPS display at 1,280 x 800. HP is promoting its brand and software by offering an HP ePrint app. The idea of software inclusion is to encourage users to buy a wireless HP printer so that they would print content sent from the tablet.
The Slate has specifications that are mediocre, even for a budget device. It has only 8GB of internal storage, is powered by a dual-core Cortex-A9 processor (1.6 Ghz), and has the older Bluetooth is 2.1. The device is also very heavy, weighing 1.6 pounds.
Tablet Competition is Fierce
At the budget level, competition will grow when Samsung promotes the upcoming 7-inch Galaxy Tab 3 for $199. Asus is set to release a MeMo Pad HD 7 for $149 (16 GB version). The 8GB version will be just $129.
HP's tablet strategy is doomed, because the product offers no differentiation over other Android tablet. The price is the same or more, the experience is same or worse, and HP does not incorporate any WebOS elements on the Slate tablet. Similar tablets are on the horizon, and it could very well force HP to once again sell the device at fire sale prices, perhaps as low as $99. On Amazon.com, the Slate is already on sale for $144.
Strong WebOS Elements Missing
HP wound down WebOS development to cut costs, but the company could still have taken the system to differentiate its tablet from others. Full card-based multi-tasking and cross syncing notifications could have given HP a more solid product.
HP released the slate to gain entry in a market it did not cover. In its fiscal second quarter, HP gained the confidence of its investors by reporting revenue declines that were not as bad as initially thought. Shares are up 25.64% in the last year.
The company expects free cash flow will be 7.5 billion in 2013, helped by restructuring payouts and lower capital expenditures. This gives HP flexibility in pursuing the tablet market at-cost or at a loss. Unfortunately, the Slate is chasing market share by entering the lower end of the market. The mediocre release will probably not translate to sales of other HP products, most notably printers and portable computers. This could spell trouble for investors who bet HP could initiate some relevance in the mobile market space.