HP TouchPad fire sale highlights gap for sub cheap tablet to take on iPad

Tech analysts were stunned late last week when HP announced it would be discontinuing its WebOS devices, including the newly released TouchPad, but retailers have been even more shocked when a price cut to $99 saw thousands of people line up to get their hands on the device.

The fire sales – which have seen all Australian stock sell out within the past few days – have also prompted questions about whether such a price point could deliver a blow to the dominance of the Apple iPad.

Telsyte analyst Alvin Lee says there is definitely a place in the market for a tablet priced under $500 to undercut the iPad.

“Our estimate for the end of 2011 will be that the iPad retains about 71% of the market share, with the other platforms making up the rest of the market. We expect that tablet devices that come late into the market will need to undercut Apple’s pricing to gain consumer’s consideration.”

“We believe that a sub-$500 piece will be successful in the Australian market. I think a device costing that amount that does basic functionality such as browsing emailing and calendars really makes sense to consumers.”

There is certainly demand for such a device, with retailers selling out of all HP TouchPads within the last few days. Harvey Norman confirmed this morning it had sold out, while reports of profiteering on eBay have emerged as customers attempt to sell the devices for more than double the discounted price.

While many users will have purchased the TouchPad due to the announcement it would no longer be manufactured, the discount to $99 can’t have hurt, analysts say.

However, Ovum analyst Tim Renowden says mounting a challenge to the iPad at that price point is a significant challenge.

“It’s very difficult, if not impossible, to produce a tablet that is competitive at that price. The reason the TouchPad was so popular yesterday was because it’s a $500 tablet that is basically selling for a cheaper price.”

“It’s unsustainable, because the manufacturing costs would be a few hundred dollars. There have been a couple of attempts to do low cost tablets, but they haven’t sold anything like the iPad or generated that sort of enthusiasm.”

While Renowden says that manufacturers may be able to reduce quality in order to cut costs, that isn’t necessarily a sustainable strategy.

“People will compromise on quality, but there is a limit on how far you can push it.”

The announcement from HP that it would discontinue WebOS products has stunned analysts, some of whom expected the software to mount a challenge to Apple and Android.

However, the discontinued TouchPad represents the challenges facing entrants into the tablet market, specifically around creating attractive devices, and a critical mass of apps and developers.

HP’s future is also in question after the company hinted it would spin off its PC business.