Hewlett-Packard Third Time Lucky?

Hewlett-Packard (HP) has once more revealed its intention to re-enter the smartphone market. A senior executive within the company’s consumer PC and media tablet division revealed the goal to an Indian newspaper, The Indian Express. No clear timetable, target segment or device form-factor were mentioned, however, she admitted it would be “silly” to deny any rumours of a new smartphone product. The PC computing company launched its first Android media tablet, HP Slate 7, in late April of this year, and sales have so far been less than ideal. How the company expects to pave a successful way into the smartphone market remains an interesting dilemma.

Most people will recall HP’s attempts to enter the smartphone market in 2010, with its $1.2 billion acquisition of Palm and re-launch of the webOS platform. The company released two smartphone products and claimed it would support these new fledgling devices before promptly discontinuing them six months later. HP also released the TouchPad media tablet featuring webOS 3.x in June 2011, which was put on fire sale for $99 and discontinued only 49 days later.

Stepping back further into the veils of time, HP purchased Compaq in 2002 and also manufactured and sold its mobile devices, specifically the iPAQ series. Although iPAQ were primarily used as a PDA, the devices also had the functionality of a mobile handset. Eventually, all the mobile device series were discontinued.  Could the company’s third attempt be different?

Furthermore, we are also seeing typical consumer behaviour change from wanting devices for “content creation” applications to now wanting passive, “content consumption” scenarios on media tablets or phablets, which is also adversely affecting potential PC sales. A PC was once seen as an aspiration item that could help leapfrog your wealth/social status a level or two. The PC was a sign of wealth to your peers.

This aspiration item has now switched to a smartphone in certain countries and regions, particularly the ones that are not saturated by PC ownership. Further compounding matters, PC hardware specifications are also less valuable as we witness the trend for greater cloud computing; the value or premium for extra memory in a computing device is not what it once was.

Unsurprisingly, HP’s PC shipments and revenues have been declining every quarter for some time. The company has taken some steps to alleviate this dilemma, and it launched a small media tablet, HP Slate 7, earlier this year. The Slate 7 addressed the faster growing smaller tablet demand, is well-priced and the HP brand is still considered strong with the general consumer. However, the lower-end specifications and limited features of the device make it non-competitive with the Google/ASUS Nexus 7 baseline Android slate.

The smartphone market, on the other hand, has been growing at a blistering rate over the last few years. The product category even defied the 2008/2009 banking crisis and recessions in many of the leading countries, growing whilst the majority of markets shrank from a shipment growth perspective. Apple and Samsung have become wealthier beyond their dreams on the wave of iPhone and Galaxy smartphone sales.

Nevertheless, HP needs to realize the smartphone market is highly competitive and many seasoned veterans in this market are struggling to make ends meet. Focusing on the Android ecosystem, the most likely OS for a HP smartphone, there are a number of mobile OEMs with strong device positions, branding, and unique feature propositions that are sinking fast. Android’s business model is about maximum eye glances and selling services, and thus its strategy ensures, where possible, pushing down device costs. Samsung dominates the profits in the Android arena and few companies manage to make a decent enough mark in the black to survive. Even the Korean mobile vendor is looking at alternatives to Android.

For all the above reasons, ABI Research believes HP is doomed to fail in the smartphone market. At the very least, it is on the fringe of redefining insanity by trying to extend itself into the mobile marketplace after quite public miscues.  The company needs to re-examine what is going to happen in next generation devices after smartphones and what best fits its strengths. Looking at the smartphone market like it is some appetizing entrée in HP’s eyes is the equivalent of looking through a grimy sock and imagining a soggy cold vegetarian pie is a succulent steak. One could suggest, Apple and Samsung are healthy vegans, however, the analogy will stop there.

HP should re-visit its ultrabook portfolio, particularly convertibles and detachables, and also re-evaluate the potential relationship between wearable technologies and PCs.