How Much Did HP Lose on the TouchPad? Here’s a Good Guess.
Sales of Hewlett-Packard’s abandoned TouchPad tablet are spiking today on word that prices have been slashed on existing inventories of the device at retailers like Best Buy to $99 for the 16 gigabyte version and $149 for the 32GB version.
Suddenly it seems incredibly popular: HP’s own Web site appears to have sold out of them. Engadget noted that the TouchPad is the hottest gadget on Amazon today, but not for the newly slashed price. At the moment, the 16GB unit is going for $454 on Amazon, and the 32GB version for $502.
Whatever this last minute mania might do to cushion the damage, the fact is that HP is taking a financial bath on the TouchPad, and not a small one, either. According to analyst Shaw Wu of Sterne Agee in San Francisco, HP’s initial order from its Taiwanese contract manufacturer, Compal, was for between 500,000 and one million units.
As we now know, sales of what we called the “OuchPad” were terrible, particularly at retailer Best Buy and pretty much everywhere else, prompting a sudden decision by HP management to kill the product and, in fact, all hardware running the webOS operating system.
So how much will HP end up losing on the TouchPad? We’ll probably never know for sure, but let’s do a little back-of-the-envelope math in order to arrive at an educated guess.
We know roughly what it cost to build each TouchPad, courtesy of a teardown analysis conducted last month by the research firm iSuppli. A 16GB TouchPad cost $306.65 to build, while the 32GB version cost $328.65.
Now let’s assume that the million-unit order is correct and that it was evenly split between 16GB and 32GB units. (It probably wasn’t, but it makes the calculation easier.) That would make HP’s combined hardware cost $317.7 million. Let’s give HP the benefit of the doubt and assume that before last week’s events it sold 50,000 units at an average price of $400. So we’ll subtract $20 million. That leaves us with $297.7 million.
Now let’s do the same calculation, this time assuming the order from Compal was for an evenly divided 500,000 units. In this case, the total hardware cost would be about $159 million, which, after knocking off that same $20 million sold, leaves us with $139 million. Thus, our range is somewhere in the neighborhood of $140 million to $300 million spent on hardware alone, depending on how many units were ordered.
Whatever the actual figure, you can bet that the cost of written-off hardware is a sizable contributor to the $1 billion cash charge HP said it will be taking in the fourth quarter, related to the shutdown of the webOS hardware business.
What else goes into that $1 billion? Costs associated with people who worked on it, who will soon be out of a job, for one thing; plus getting rid of any related assets, and so on.
And though it doesn’t factor into that $1 billion charge, it would be interesting to find out how much HP’s advertising agency spent on filming and buying TV slots for the TouchPad TV commercials starring Lea Michele from “Glee” and the Filipino boxer-turned-politician-turned-singer Manny Pacquiao. Those folks don’t exactly turn up for free. Nor do primetime ad slots. Also, as Reuters reported, those ads were still running on CNBC as of Friday.
Update: A few more thoughts on what other line items are likely within that $1 billion cash charge, courtesy of Wayne Lam at IHS iSuppli. There would have been other TouchPad models in various states of the design and manufacturing pipeline, though probably more designed and prototyped than manufactured. Then there was the associated research and development work going on with the various models of webOS phones that HP sold, not least of the which was the Veer — which oddly enough was in the schwag bag given away at D9 — as well as the Pre 3. Lam also says that HP was thought to have an exclusive contract with Qualcomm for the supply of the chips for the phones. Shutting down the hardware business might invoke some expensive contract cancellation terms, he says.