HP’s Touchpad Turnaround is False Hope; Three Reasons Why

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HP's Touchpad sale has sparked an incredible turnaround for the once-dismissed tablet, but this momentum is unlikely to last.

The fire sale, which saw the price go from $399 to $99, comes only days after HP announced it was spinning off its PC business and cutting off production of all current webOS devices. That announcement, along with an acquisition of an infrastructure software company by the name of Autonomy, caused HP's stock to drop dramatically from $29.46 to $23.86 (20 percent), by the end of last Friday.

However, with the price cut of the Touchpad, HP's stock has shot up 0.85 cents per share, or 3.60 percent. After HP announced the sale, retailers such as Best Buy, Office Depot, Staples, and Wal-mart decided to partake in it as well.

Sales have been so impressive in the early stages. HP has announced it was out of inventory as did other retailers.  Even on Amazon, which didn't cut the price of the tablet, the tablet was listed the number one best seller topping Amazon's own Kindle and the iPad.

Yet, even as the tablet continues to sell in great numbers, one should be weary of calling this the cure to HP's problems. Here are three reasons why the company will still struggle even with a hot-selling Touchpad.

Losing Money: According to an iSuppli teardown, the 16GB Touchpad cost to build $306.65 while the 32GB version cost $328.65. This means if the 16GB version sells for $99, HP is losing more than $200 on every Touchpad sold. There is a reason the tablet had such a high price.

Still A Mess: Here's a quote from Kevin Hunt, an analyst with Auriga who actually improved his rating on HP after the Touchpad sale, about the company. It perfectly describes the reality of its situation. We would not take this as an opinion that HP is a great company, or that we have any faith in the current management team. We don't think either of those is the case. HP is still a mess. Exactly. Hunt is essentially saying a bargain buy is a bargain for a reason.

Competitors: All HP's Touchpad sale has done is open the eyes of every non-iPad tablet competitor out there and given them an unmistakable message: cheap is better. As soon as other tablet manufacturers, particularly Amazon and those which use the Android OS, come out with a $100 tablet, HP's becomes irrelevant (especially since it will never get the update treatment).

Follow Gabriel Perna on Twitter at @GabrielSPerna

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