Of Course HP Will Enter the Smartphone Market Again

by Patrick Moorhead   |   September 25th, 2012

Two weeks ago, the industry was abuzz with discussion about Meg Whitman’s Fox Business interview on September 13. There, she said HP must ultimately offer a smartphones. This set off a chain of new stories, some aghast that HP would be considering something like this given HP’s last foray in phones. Most of the ire stems from HP’s exit and dismantling of Palm and webOS last year versus a strategic analysis. Upon closer analysis though, this makes perfect, strategic sense for HP.

HP’s last foray in phones didn’t end pretty. In less 18 months, Palm and webOS was acquired by HP and then shuttered. In less than 60 days, the HP TouchPad was launched then discontinued. There was nothing positive about how this ended for HP, Palm, webOS, retail partners, employees or its app ecosystem. At this point, none of this matters in the future and it really is time to move on. The discussion must start at the value of the smartphone.

I have been unapologetically bullish on where I see smartphones into the future. There is a credible scenario where the smartphone could take on most of our client computing roles. In this scenario, the smartphone is a modular device, which “beams” data to wireless displays and peripherals. Modular operating systems with modular development environments like Android and Windows will enable developers to write once and deploy to many different kind of form factors. Just imagine how much better this will be in five years. Even at IDF 2012, Intel showed this scenario in their WiGig video, albeit with a tablet, but there’s nothing to keep this from being a phone. I want to be clear that this (heavy modularity) will only happen if PC usage models stagnate to the point where they don’t need tremendously more compute performance or storage. If Intel is successful with their Perceptual Computing initiative, the probability of this scenario greatly decreases as the smartphone won’t be able to deliver the required performance. HP then must develop a smartphone if they want to be in the future client hardware business. Meg Whitman also talked emerging markets.

Meg Whitman touched on this modularity potential when she talked emerging regions. She talked about how in some countries, the smartphone would be their first computing device and in some cases their only computing device, meaning they will never own a PC or tablet. The first point here is price. In many countries, people will only be able to afford one device, and that device will be a smartphone. Secondly, due to the modularity scenario described above, it will extend to other usage models, like desktop computing. I don’t think anyone can find fault in Meg Whitman’s logic. Let’s now look into enterprise.

Today, two of the biggest buzzwords is “BYOD” or the “consumerization of IT”. Don’t confuse this with the ability to get corporate mail on your iPhone. That’s not BYOD. BYOD is getting full enterprise network, application, security, and management access. That’s a lot different than mail, but many “experts” do confuse this very important point. Imagine how important this is in a healthcare, financial, government, or even any business that develops any kind of IP. You get the point. This is where HP could meet a need for a phone and enterprise management system for that phone, so it is managed just like an enterprise PC. Given HP’s enterprise focus, it makes perfect sense for HP to offer an enterprise-class smartphone with enterprise security, manageability, and deployment capabilities. Does this mean it will be an ugly brick? No. I’m speculating a bit, but I think it will be an attractive phone, but it will be durable enough to be dropped once without shattering the screen or glass backing. As its designed for durability, it will be waterproof, too. HP has an opportunity, the one opportunity that RIM and BlackBerry missed, and that’s an enterprise phone.

There are many strategic reasons for HP to offer a smartphone that are very logical, given the enterprise and emerging region needs explored above. Given HP’s enterprise focus and experience in managed client devices, they have a lot of value to add, too. Add that to the modularity scenario and it essentially would make HP look crazy not to get back into smartphones. I outlined here that PC makers cannot run away from smartphones, so I am very happy to see HP getting back in. As for execution? While fresh in the industry’s mind, I think it’s time for all of us to get beyond webOS and give HP another shot.

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Patrick Moorhead

Patrick Moorhead was ranked the #1 technology industry analyst by Apollo Research for the U.S. and EMEA in May, 2013.. He is President and Principal Analyst of Moor Insights & Strategy, a high tech analyst firm focused on the ecosystem intersections of the phone, tablet, PC, TV, datacenter and cloud. Moorhead departed AMD in 2011 where he served as Corporate Vice President and Corporate Fellow in the strategy group. There, he developed long-term strategies for mobile computing devices and personal computers. In his 11 years at AMD he also led product management, business planning, product marketing, regional marketing, channel marketing, and corporate marketing. Moorhead worked at Compaq Computer Corp. during their run to the #1 market share leader position in personal computers. Moorhead also served as an executive at AltaVista E-commerce during their peak and pioneered cost per click e-commerce models.
  • http://twitter.com/Dan_Braden Dan_Braden

    Of course HP will enter the ENTERPRISE smartphone market
    again. They cannot ignore this segment
    that will be larger than the consumer market for the reasons that you indicate. The questions are how they develop a
    differentiated software ecosystem including their other solutions (NB, DT,
    server, storage, networking and services) that will make it worthwhile for
    enterprises to purchase these. They can no longer use their marketing and distribution
    models to consolidate other peoples IP into products nor are they willing to
    spend the money to develop a differentiated consumer ecosystem.

    • FalKirk

      “Of course HP will enter the ENTERPRISE smartphone market again.” – Dan_Braden

      I don’t think that there any longer is a separate Enterprise smartphone market. I’m willing to entertain arguments to the contrary.

    • capnbob67

      There is no Enterprise phone market any more. See RIM…

      Whatever there is, it will be infinitesimal compared to the consumer opportunity. Why do you think that Apple has gone from less than half HP’s revenue size to significantly bigger in only 2 years ($67Bn 2010, $150Bn+ 2012)? The iPhone alone is worth way more than all of MS in revenue and profit. The IT blinkers of the past where only enterprises and wealthy consumers could afford technology is long gone. Each iPhone has an ASP higher than the average for all laptops. Consumers buy many more expensive smartphones than enterprises buy laptops/desktops and enterprises will not be paying for more smartphones for their employees who already have something adequate. See RIM…

      They do need an ecosystem view for their enterprise customer but they are so far behind in understanding it yet alone reacting to it that I see little hope for success. The world is changing to a model that is inimical to everything that made HP successful. It used to be neatly tiered, big iron, single platform, in-house provision, IT policy driven stuff. Now it is mix and match hardware, multiple platforms, ASPs, outsourced, consumer-influenced – not areas of strength for HP.

      • http://techpinions.com/about-tech-pinions/patrick-moorhead Patrick Moorhead

        RIM had a flawed approach to an enterprise phone. They encrypted the data but that was it. They didn’t solve the enterprise app problem. The “many people have tried” reasoning doesn’t hold water. Many people failed at tablets until Apple found the right solution. Apple’s angle of attack was the right one, unlike the others.

  • FalKirk

    “There are many strategic reasons for HP to offer a smartphone…”

    I totally agree with that. What I don’t understand is what unique value HP would bring to the smartphone markets.

    • steve_wildstrom

      That was the problem with HP’s pre-webOS phone effort. The company came out with thoroughly undifferentiated Windows Mobile Phones and the only way they could move them at all was by throwing them in with enterprise PC purchases in
      Europe. (The phones never really made it to the U.S.)

      The difference is that the phone market is now strategically vital. HP had a real chance with webOS and blew it. I think they will pay a price for that for a long time to come.

    • http://techpinions.com/about-tech-pinions/patrick-moorhead Patrick Moorhead

      I see the need for an enterprise worthy phone, which doesn’t exist. Not just a phone to do email on, but a phone where I can access enterprise apps and data. BYOD is a pipe dream right now which will force a corporate standard in phones. There are many methods on paper but none has stuck so far.

  • capnbob67

    Patrick – you might want to not confuse BYOD and/or Consumerization before you start throwing the word “experts” in quotes around.
    BYOD is what it says – bringing your own device and leveraging it for business tasks with the express permission of the company. Those tasks may or may not require full access and integration to all core IT infrastructure. Most tasks for most mobile users are usually email or web-app driven and that is all there is to it often. Enterprise IT neither pay for, nor own the device and do not define what can be used on it, installed etc. – BYOD. My company (F100/110K employees) allows us to use our own phones instead of corporate BBs and gives us Good for email/calendar/tasks. We can also download apps for access to our collaboration environment and expense system but these are not at the direction of the company, but provision by the vendor of each platform. That’s about it and is typical of BYOD I see around my client firms (mostly large corporate).

    Consumerization is a related but different trend about the leverage of consumer grade/class devices/services (iphone/skype/google) throughout the enterprise or the leverage of consumer-level functionality within enterprise systems (collaboration/personalization/ease of use). It is a much bigger concept than BYOD since it also incorporates the provision of consumer features on non-consumer products/systems. This is not restricted to highly integrated devices but crosses the gamut from leveraging Nike+ to record distances traveled by couriers to the enablement of rich multi-media content within ERP systems to improve functionality. Both have a significant impact on HP but neither imply any particular strength or strategy for HP which has for a long time thrived on selling bundles of kit at traditional Enterprise IT.

    BYOD fundamentally weakens HP because it of its very nature. It’s in the title – employees bring their own devices, and guess what… none of them are HP. No company I know will mandate their employees to get a specific device on their dime any more nor will they go back to buying devices for all (now they have removed that cost base from their balance sheets).
    Consumerization is broader but still negative for HP. They do not and will probably never make consumer products that will be chosen for integration in to Enterprise architectures. At best they will make a 2nd rate copy which will probably prove unpopular and substandard vs. the original (e.g. TouchPad/iPad) which will have limited, grudging and unspectacular take up by a few gullible HP customers. As for adding consumer capability to Enterprise systems, a lot of that is coming in the mobilization/mobility projects going on throughout Enterprises. It sounds like just some boondoggle for getting an app onto a phone but it often leads to the total rearchitecting of the enterprise system so that it can be exposed on any device/platform including desktop with enhanced functionality (per the mobile specs). HP has little role in this except via EDS and some of their deeper infrastructure stuff. It certainly won’t sell new PCs and is mostly likely to keep the old kit viable for longer.
    As for emerging markets… HP has no play here – inferior channel to consumer/small business, inferior cost base to the local/chinese/indian players who are already focusing on developing world IT and infrastructure. They will remain in their niche providing traditional IT to traditional customers as that market slowly erodes around them.

    HP are in a pretty pickle and I’ve heard nothing yet to suggest they have any answers.

    • http://techpinions.com/about-tech-pinions/patrick-moorhead Patrick Moorhead

      Please kindly reread the blog. “Or” In the English language means to separate items. And I am drilling into BYOD, not consumerization.

  • Rich

    “I think it’s time for all of us to get beyond webOS and give HP another shot.”

    Patrick, we weren’t the ones that messed HP up – they messed themselves up. And we aren’t the ones that need to give them another shot. HP, and no one else is responsible for creating the future scenario you describe.

  • deuce

    BYOD is a nightmare from a enterprise device management perspective.

    Imagine the variance in the endpoint OSs. A management agent needs to be installed on every end point, so needs support on all the different OSs. OS must be patched for security issues. Patching could break employee owned apps. Company apps need to be patched. How are you going to manage app licensing? How can you prevent an employee from bringing a pirated/cracked apps into the enterprise? How can you prevent an employee from bringing in malware into the enterprise? If the end point is owned by the company, compliance can be enforced. Cost of the apps will be greater than the hardware cost of the endpoint, what happens to the installed apps when the employee resigns? What happens to the installed apps when the employee changes end points? Why should the employee pay for hardware to do company work?

    An average PC in an enterprise has $1500 worth of software. Cost of the hardware is less than $500. It is simpler and cheaper for a company to give the best mobile devices to employees who need mobility.

    Why would an employee buy a HP device when there are much better alternatives available?

    HP is screwed. It is better to return $ to the share holder and close HP.

    • steve_wildstrom

      You comment couldn’t help but remind me that as Apple teetered on the brink of collapse in 1997, Michael Dell suggested that its board should shut it down and give the money back to the shareholders. I’m not suggesting that HP is likely to go through an Apple-like resurrection. But the company does still have great resources and, with the right decisions and the right leadership, could easily come back in what is still a volatile industry.