HP's Slashing TouchPad Price May be Smart No. 2 Play to Catch Apple

HP's slashing its TouchPad tablet down to $399 might look like a setback against Apple's market-leading iPads, but may actually be part of a shrewd strategy to be a prosperous No. 2.

After all, handheld instruments are a part of the vaunted "HP Way," the founding philosophy of co-founders Bill Hewlett and David Packard, who started the company in 1939 making handheld devices. True, later CEOs spun off that part of the HP businesses as Agilent Technologies, but quality, good engineering and reliability have always been part of the HP culture.

There's nothing wrong with being a No. 2 or even a No. 3 in a field that's brand new. Meanwhile, the Palo Alto, Calif.-based computer services giant can allow Apple, based in Cupertino, Calif., to keep the lead, with all its sex appeal and be regarded as a steady rival.

HP also has loads of in-house technology as well as a storehouse of patents, including many pioneering wireless and software ones that came with its $1.2 billion acquisition of Palm in 2010. Palm's webOS mobile operating system was one of the first back in the days when its co-founders, Jeff Hawkins and Donna Dubinsky, more or less invented a technology that's taken for granted. Now it underlies the TouchPad.

HP is also usually ranked as either No. 1 or No. 2 in the PC market in the U.S., does well with consumers and is solid in the education market. So timing the TouchPad price cut --- to about $100 below the iPad during back-to-school season, fits the strategy. HP also knows how to market into the consumer channel: it didn't get to be No.1 in the global printer market without some skill.

So far, HP hasn't said how many TouchPads have been sold since they started shipping in late May. But next week, when the company is scheduled to announce third-quarter results, that clearly will be one of the questions for new CEO Leo Apotheker.

True, when it was introduced, TouchPad's first buyers noted the product wasn't as much fun as the iPad but it garnered decent reviews.

By contrast, Apple announced last month it shipped 9.3 million iPads just in its June quarter. The company, as usual, got a premium on its margins from the iPad's premium price.

But given HP's presence in the corporate market, among so-called enterprises, there's no reason why TouchPad sales couldn't be tweaked, say, by linking the product to "bundles" in sales to Fortune 500 companies that already own thousands of HP PCs and run their data centers on the company's high-end servers and software. That would just be another version of tweaking the "HP Way" for a new opportunity in the tablet sector.

Also, because of its role in the corporate market, HP enjoys the respect that some of the tablet makers, including Research in Motion with the PlayBook and Samsung Electronics with its Galaxy Tab, can't approach.

The TouchPad price cut didn't hurt HP stock, either. In Friday trading, shares rose more than three percent to $32.03.