HP's New Tablet Could Be an iPad Spoiler

Five months after Apple (AAPL) kicked off the tablet era with the iPad, Hewlett-Packard (HPQ) is trying to shake up the market by giving its tablet away free. Well, not completely free. The 7-inch tablet, measured diagonally, comes packaged with HP's $399 Photosmart eStation and serves as the printer's control screen. Equipped with Wi-Fi, it can be detached and used to download e-books from Barnes & Noble (BKS), play digital music, and connect to social media sites such as Facebook.

HP's tablet may look like a bargain next to rival products due out soon from Samsung and HTC. Those tablets are expected to be priced at around $400 with wireless carrier subsidies and don't come with a printer that can fax and scan documents, too. Some analysts think HP's move could cool other manufacturers' ardor for tablets. "It's a little like someone showing up to the first date with an engagement ring," says Roger Kay, president of technology consulting firm Endpoint Technologies Associates.

HP can afford to undercut rivals on price. Last year's version of the same printer had a built-in display and also went for $399. The company's Imaging and Printing Group makes money not on equipment but on cartridges of toner and ink. (Research firm Gartner (IT) crunched the numbers six years ago and figured HP was charging the equivalent of $7,500 per gallon for ink.) The operating margin in HP's printing business was 17 percent in the last quarter, compared with 5 percent in the PC group. Vyomesh Joshi, who runs HP's printing unit, says the goal isn't so much to trounce the competition as to get people to print content off the Web. "There's a content explosion going on," he says, "and we absolutely want to get that content and print anywhere, any time."

The market for tablets is expected to grow from virtually nothing last year to 11 million units in 2010, according to forecasts from ABI Research. One potential concern for HP and other PC makers, though, is that consumers may come to see the tablets as replacements for laptops and desktops rather than as second or third computers. In a recent statement posted on the company's website, Best Buy (BBY) CEO Brian Dunn noted consumers are shifting toward iPad-like devices. Says Richard Shim, research director for IDC's personal computing program: "Everyone is trying to figure out the opportunity for these types of devices, how to position media tablets in a way that they don't cannibalize other businesses."

The eStation's tablet has limitations, which may convince consumers that this tablet is no PC substitute. For example, it does not offer full access to Android Market, the Google (GOOG) online store that carries more than 70,000 applications. Unlike the iPad's 10-hour battery, HP's tablet runs for only four hours before needing a recharge. That may be good enough for people looking to step up from Amazon.com's (AMZN) Kindle, the electronic book reader that uses E Ink's black-and-white technology, to a relatively stylish color screen and entertainment device. "It ain't no iPad, and it's not necessarily obvious that a tablet belongs with a printer," says Endpoint's Kay. "But for that price, I'd certainly be willing to take a look."

The bottom line: HP's decision to bundle a tablet computer with its new $399 printer could make trouble for competitors.

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