About that second round of $99 TouchPads

HP has announced its intention to build and sell more TouchPads at or around $99. [1. Retailers will be able to set their own price.] Since HP is taking a huge loss with each TouchPad sold at $99, why do it? It’s a matter of dealing with its inventory of parts, as well as existing contracts with manufacturers and suppliers.

I imagine HP thought it could cut bait and run until someone in accounting figured that it would be cheaper to assemble existing parts and sell the resulting units to offset the sunk cost, as opposed to sitting on a mountain of unused screens, etc.

Also, Digitimes suggests that existing contracts may prevent HP from halting production entirely. Suppliers who were surprised by the TouchPad’s discontinuation are sitting on a huge and suddenly unwanted order:

“The sources pointed out that the inventory level is capable of producing about 100,000 7-inch TouchPads and was originally set to start production at the end of the third quarter, but HP’s sudden change of strategy has completely messed up upstream player’s schedules.”

As Philip Elmer-Dewitt suggests, HP likely took delivery of those parts to maintain important relationships:

“Repair relations with your Asian suppliers by pushing those components through the factories. And then give it a positive spin by telling your customers that you are doing it just for them.”

What does this mean for the iPad’s future? Nothing.[1. This is beyond silly.] However, that’s not the case for other tablet manufacturers. Jonny Evans explains how consumers’ desire for iPads and suddenly inexpensive TouchPads is a one-two punch for the remaining players:

“iPad competitors will be combating each other for the smallest slice of the market. HP’s recent move to sell $99 TouchPads means many consumers already have a device they can use for the next year or so. That reduces potential sales numbers, and creates an expectation that non-iPad tablets aren’t worth much money. All vendors will feel this pricing pressure.”

A huge price war is about to erupt, just as the holiday shopping season begins. It’s going to be an interesting winter for the tablet market. If there even is such a thing.