Why the HP TouchPad is Deader Than a Doornail

I’ve read some impassioned pleas from webOS and TouchPad fans asking HP to bring back the webOS device business.  Here’s my thoughts on why that will never happen.

Before I begin, I wanted to say upfront that I really like the TouchPad.  The accessories are first-rate and I love the interface that webOS brings to the table.  I have two on order from HP and expect to use them, and I respect the HP/Palm team that brought this product to market.  They did good work.  This is purely a function of math and the implications of first-mover advantage for Apple.  Here’s what I mean.

The Numbers

There is a great group called iSuppli that does teardown estimation for products to get a handle on costs.  The HP TouchPad was given the teardown treatment here, and we get a good handle on what HP had invested in each unit sold.  For this analysis, I assume that iSuppli is in the ballpark when estimating the TouchPad’s costs.  The following shows a summary of the iSuppli teardown study:

	16GB	32GB
Bill of Material Costs	$296.15	$318.15
Assembly Costs	$10.00	$10.00
Total Costs	$306.15	$328.15

When you assume that HP would sell these units at full list price, here is what the potential profit assumptions are:

I had to make a few assumptions.  I don’t have their unit sales projections, but surfing the web lately, there are estimates of about 500,000 of these products were made and stocked for the product launch.  I assumed a 50% weighting of the 16GB and 32GB versions, and there are no transportation charges from Asia to North America built into these costs.

So HP clearly expected this first run of about 500,000 tablets to earn a profit before taxes and distribution costs of over $100 million USD.  Hey, sounds like a winner, right?  Who wouldn’t launch this run of product if there is a chance to make $100 million in the quarter?

Now for reality:

Ouch!  No wonder Leo got whacked!  HP may have lost almost $100 million selling the first batch, and if the second batch of 200,000 is added in, the loss before taxes approaches $135 million. Note that this estimate excludes any penalties for breaking assembly contracts, letting people go, other shutdown costs and any payments that might have to be made to dispose of Pre3 and Veer phones that can’t be sold.  I think you can see why the board would immediately question any CEO would proposed restarting the product line.