The Apple Downgrade Kills HP

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Randy Savicky
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The Apple Downgrade Kills HP

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We all know about the S&P downgrade caused by the rating agency's view of U.S.'s debt and debt ceiling. S&P saw the writing on the wall that U.S. is on the road to insolvency and default on the debt. Well, apparently the Apple iPad tablet has had a similar downgrade affect on HP's PC, laptop, and tablet business. The big news is that HP is not only killing off their TouchPad and Pre webOS products, but HP is also attempting to spin-off their PC business. Say what? The leading PC manufacturer in the world is giving up on the PC business? It doesn't make sense.

Yes, the HP TouchPad is not flying off the shelves, but it doesn't have market awareness, nor iTunes, which is a huge factor. I posit that it isn't a battle of hardware between HP and Apple's iPad tablet - it's a battle of an unknown HP app store vs. the largest app store in the world, which includes the largest library of music, videos, and mobile applications. HP could offer a tablet twice as fast with a snazzier screen and thinner than an iPad, but without a significant app store for "content", Hewlett-Packard’s TouchPad was dead on arrival.

You could argue the same should be true with Android. However, Google has invested millions in building up their app store and they don't charge vendors to license the Android operating system - it's free. So it enticed hardware manufacturers like HTC, Motorola, and others to build Android devices. Basically, Google followed the Microsoft model of developing an operating system, and then letting vendors build off of it. Though Microsoft does charge for their mobile operating system. But that shows Google's sheer genius in giving away the mobile operating system since they were way behind in marketshare starting from zero. HP needed something bold like what Google did.

HP on the other hand owns the closed proprietary WebOS operating system, which they purchased from Palm for $1.2 billion so they could build their own mobile phones and tablets. Essentially, HP was going head-to-head with another company with a closed proprietary operating system - Apple with their iOS operating system. Apple is a unique case. Its fans don't mind the fact that it is a closed proprietary operating system. (though jailbreaking it allows you access to underlying operating system)

HP betting on a new proprietary operating system was a strategic blunder. Now, I've seen commercials for HP's TouchPad showing its sexy UI, but so what! Does it support popular apps like Pandora, Remote Desktop (RDP), Facebook, Dragon Go!, BlogPress, and others? Unless I, as a consumer, am convinced developers will write applications for yet another mobile operating system, I'm not going to shell out $400-$500 for a tablet that has no third-party apps.

HP would have been better off buying Palms considerable patents (1500+) and licensing those patents. Further, HP has excellent hardware expertise from building desktops and laptops. They could have used that expertise to build an excellent Android-based tablet and they would have crushed the competition. They would have been the clear alternative to the Apple iPad. A name brand you can trust using a popular and exponentially growing operating system, plus a decent (Android) app store to boot. HP can still do this. In fact, they already have. Back in 2010 they built an Android-based tablet called the Slate. However, HP then scrapped the Slate with no indication as to the reason, with only speculation that they wanted to focus on building a WebOS tablet. Big mistake!

But putting aside their bad mismanagement of the mobile space, why kill their PC cash cow by spinning it off? Yes, PCs have very small margins, but it was still profitable to HP.
Further, laptops have better margins, though certainly tablets are eating away at that business more so than the desktop PC business. If laptop sales are falling short, why not just spin off the laptop portion and keep the desktop? The desktop PC isn't going away, no matter what the pundits say. Desktop PCs and Macs are still considerably cheaper than equivalent laptops. PCs still have advantages over laptops, including: can get more bang-for-the-buck (better specs), faster hard drives (laptops often have 5400RPM not 7200RPM due to heat generation and power usage), less breakage (dropped laptops), and better video cards (dual or triple monitors, better FPS for gaming). Further for the enterprise, employers may want the security of desktops since they are not easily mobile, which reduces the chances that it can be lost or stolen.

Perhaps HP looked at their PC revenue sheets and saw the downward slope caused by the iPad. What I believe they are ignoring is that this slope will level out, since there will be a market for PCs for the foreseeable future. Don't believe the tablet hype. I use a desktop, Dell laptop, iPhone, and iPad, but would never give up my desktop or laptop and go 100% tablet. I just wouldn't be as productive.

According to Brisbane Times, they are not killing off their PC server business, which has very high margins. However, with the spinoff of the consumer & business line of desktops & laptops, this will affect IT managers long-term view of HP's viability when it comes to HP servers. Who wants to buy an HP server now knowing you might not get support or be able to find a part (motherboard) if something fails. Yes, a lot of the components are very common and easy to find, but you don't mess with servers. You buy the original part from the manufacturer so you don't encounter and possible issues. HP just killed IT's confidence in their server products. Indeed, HP may have shot itself in the foot and killed off their server business without realizing it.

HP has a huge brand name and loyal following. I know many technically savvy people that only buy HP laptops and refuse to buy Dell, the 2nd (now #1) leading PC manufacturer. Nobody likes betting on a loser or someone that simply gives up. HP gave up to Apple and cried uncle without a fight. This will cause an exodus of users to Dell - mark my words.


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