HP spends $1.2 billion to lose $2 billion and get laughed at

On July 1, 2011, Hewlett-Packard introduced its TouchPad, an electronic tablet designed to compete with Apple’s iPad. A base model TouchPad retailed for $499 – the same as a bottom-end iPad.

According to Arik Hesseldahl’s AllThingsD blog, consumer electronics retailer Best Buy went all-in on the device, buying 270,000 of the units.

At the beginning of August, HP cut the price of the TouchPad by $50 – and dropped it yet another $50 a few days later.

On Aug. 16 – 6 weeks after launch – Hesseldahl reported that Best Buy had only sold 25,000 units. (Equivalent to about 3 hours worth of sales volume when Apple released the iPad2 in March 2011.)

And 48 days after the noisy and expensive launch, it was all over. HP announced that it was killing the product.

What went wrong? According to TechNewsWorld, it had a lot to do with HP management:

“First, there was the taint of the firm’s previous leadership, said Charles King, principal analyst at Pund-IT. The TouchPad runs on Palm’s webOS, which HP acquired when it purchased Palm under the leadership of then-CEO Mark Hurd, who left under a cloud.
Second, HP’s leadership, both C-level executives and its board of directors, seem intent on moving the company away from client products, including tablets…
That combination essentially made the TouchPad ‘the Oliver Twist of tablets – an unwanted foundling,’ [King] remarked.”

The other issue may have been the operating system. HP paid $1.2 million for webOS in April 2010, when it acquired the dying producer of Palm smart phones. The purchase price, according to CNNMoney was a 23% premium above the value of outstanding shares of stock on the day the sale was announced.

Even at the time of the purchase, webOS had little support in the marketplace, and when HP launched the TouchPad, only 300 apps had been developed for it, according to TechNewsWorld. At the same time, Google’s Android mobile operating system was eclipsing iPad’s user base, and Microsoft was launching yet another try at its own mobile operating system.

It’s easy to wonder why anyone at HP thought the market needed – or would make room for – another operating system.

At the time of the TouchPad debacle, HP still hadn’t figured it out – indicating it would continue development of webOS. In a late-November earnings call, Meg Whitman, HP’s latest CEO (the company’s fourth in five years, if you don’t count an interim appointeee in the middle), promised a decision on its future within two weeks.

Disclosing that the company was taking a $2 billion writeoff of the Palm acquisition, Whitman said, “I know we didn’t live up to our expectations in 2011.”

Not everyone who has watched HP over the years would agree.