HP To Launch Windows-Based Tablets And Laptops That Are Not Only Thin But Inexpensive As Well

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It seems that the competition in low end price segment of the PC and tablet industry is heating up. The latest company to foray into this segment is Hewlett-Packard (NASDAQ:HPQ), which has rounded out the release of its new Stream family of ultra thin notebooks and tablets. The company is launching two tablets that are priced below $150, and two new HP Stream laptops at $200 and $230 price points. This is in addition to a 14″ $300 Stream notebook released several weeks ago. [1]

All five offerings make use of thin client architecture using solid state rather than hard disk storage in the system, complemented by a storage service in the cloud, in this case provide by Microsoft.  They directly target the market segment that has been so well addressed by Google’s Chromebook and lower cost tablets  like the Kindle and similar systems from Asus and Acer. [2] Yet they do so with the full functionality of Windows 8.1 and Office 365.

These launches will also fillip Microsoft, which has been trying to promote its Windows operating system for tablets and low end laptops in the face of tough competition from Google’s Android Operating System. Furthermore, the price points for the offerings suggest that HP is targeting the emerging markets, where customers are price conscious, and have frugal spending habits. In this article, we will briefly explore HP’s offerings, and the strategy behind the launch.

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See our full analysis on HP

Tablets and Laptops To Boost PC hardware

HP’s PC and Workstation division is the fourth largest division, which contributes 29% to its revenue and makes up 11% of its estimated value. According to Gartner, PC shipment is expected to decline to 276.22 million in 2014. [3] However, global tablet shipment is expected to increase by 25% y-o-y to 251.30 million in 2014. Additionally, Gartner forecasts tablets shipments will grow to 320.96 million by 2015. However, IDC predicts that Tablet growth rate will slow down going forward due to consumer fatigue. [4] Similar trend is expected in the tablet markets due to slow down in replacement sales.

Considering the fatigue in mature market, hardware manufacturers are now focusing on emerging countries, which include over 85% of the world population, and contribute almost three quarters of global GDP growth, according to Fidelity Investment Ltd. [5] While majority of the population in these countries are below poverty line, the elite and aspiring middle class make up nearly 20% of the population. However, as economic development gains traction in these countries, many households are expected to move to higher income bracket in the future. For example, India’s middle class has 250 million people, which is expected to grow to 600 million by 2030, according to Deutsche Bank research. [6] We believe that as purchasing power in developing countries improves, discretionary spending will rise as disposable income grows, which will fuel demand for luxury items such as net books and tablets.

The offering

HP unveiled a suite of hardware on Monday, September 29. The new launches include the following:

  • HP Stream 7-inch and 8-inch : While the 7-inch HP Stream will be available for just $99, 8-inch version will cost $149. Both the tablets are powered by an Intel Celeron processor, and will use the Windows 8.1 operating system. HP indicates specifications will vary by region, so precise details are a bit unclear.  However, Microsoft is also throwing in a year-long subscription to Office 365 Personal with 1TB of OneDrive storage with 60 minutes of Skype calls each month. HP’s 8-inch tablet also includes 200MB of free LTE data each month.
  • HP Stream Laptops: The Company is launching two stream laptops; an 11.6-inch model with a HD display, and a 13.3-inch version with a touch display. Both machines will be powered by Intel’s Celeron processors, so these won’t be high performance machines. But for $199 for the HP Stream 11, and $229 for the HP Stream 13 there are priced competitively for basic computing needs. Both have fanless designs, 32GB of flash storage, and an Office 365 Personal subscription for a year.

The Strategy

HP hopes that with these launches it will be able to gain traction in a marketplace that has favored Google’s Chromebook and the tablets of Apple and Samsung. The tablets are expected to go on sale in November. The successful launch of these devices is important for HP as its thrust into a rapidly growing segment of the tablet and PC market for lower cost hybrid devices. Surely the lower price points should appeal as well to price sensitive customers in emerging economies. IDC has predicted that mini tablets (sub-8 inch screens) will account for as much as 50% of the tablet units shipped in 2014. We, therefore, believe that HP’s tablet will be able to capture a sizable chunk of this growing tablet segment and drive revenue growth going ahead.

According to IDC, Windows powered about 3.4% of all tablets shipped in 2013, a far less than the 35% of Apple’s iOS and 61% of Google’s Android. Microsoft hopes that it will be able to dent Androids market share through launch of these cheap HP devices and improve its ecosystem of devices going forward.

We currently have $29.79 price estimate for HP (approximately 15% below the current market price), and $44.46 price estimate for MSFT, which is in line with the current market price.

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Notes:
  1. Read Anandtech for more on this. []
  2. See the recent Wall Street Journal’s “Finally a $100 Tablet Worth Buying”, interestingly has no mention of HP’s new offering. []
  3. Gartner Says Worldwide Traditional PC, Tablet, Ultramobile and Mobile Phone Shipments to Grow 4.2 Percent in 2014, July 7 2014, www.gartner.com []
  4. Worldwide Tablet Growth Forecast to Slow as New and Replacement Purchases in Mature Markets Begin to Level Off, March 6 2014 []
  5. Emerging markets insight []
  6. The middle class in India, www.dbresearch.de []