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HP's tablet surrender: A sign of trouble for Apple's rivals

HP said Thursday it will discontinue making the TouchPad.

Eric Risberg/AP

Using a tablet can be a lot of fun. Making one? Not so much.

Just ask Hewlett-Packard Co., which this week killed its TouchPad tablet computer barely two months after its launch, in one of the fastest product culls in high-tech history.

The significance of the move was lost in corporate turmoil as HP announced a reorganization on Thursday that included a likely spinoff of the world's largest personal computer division. But HP's decisive obliteration of its tablet effort, and discontinuation of its mobile operating system, webOS, is a fairly good indicator of what it's like to go up against the mighty Apple Inc. and its iPad, which dominates the tablet category with about 30 million sold worldwide.

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In Canada, nine out of 10 tablets are iPads, says Kaan Yigit of Solutions Research Group, a Toronto-based consultancy. "The dominance of one brand in a tech category like this seems unprecedented," he said.

Still, "HP's exit is the fastest tap out I have ever seen."

While the iPad has sold remarkably well, other devices in the nascent product category have not seen anywhere near the same success. HP's dismal sales, despite endless discounting, is proof of that: There are reports that Best Buy has sold less than 10 per cent of its inventory, and still has around 250,000 TouchPads on its shelves. And Research In Motion Ltd.'s botched launch of the BlackBerry PlayBook tablet, which lacked key features, is yet further proof. And that speaks to a new reality in the category: The companies that do best are those that launch products with an established software system, like Apple's iOS or Google's Android.

On a conference call as HP released its third-quarter earnings on Thursday, the company's president and chief executive officer Léo Apotheker admitted both the tablet and the company's WebOS software had flopped.

"Sales of the TouchPad are not meeting our expectations," Mr. Apotheker said. "Many developers feel the operating system is elegantly designed, and is a respected platform … However, our WebOS devices have not gained enough traction in the marketplace with consumers, and we see too long a ramp-up in market share."

HP believed that its purchase last year of Palm Inc. for $1.2-billion (U.S.) could help push the company toward the huge growth opportunities in mobile. It deployed Palm's WebOS on its tablet and smart phones, but it was the only device manufacturer running the software. In the new era of ecosystems, that simply wasn't enough, analysts say. Worse, the TouchPad – though sleek and relatively well-received – did little to advance the tablet category, according to Maribel Lopez, an analyst with Constellation Research in San Francisco.

"The only company that's successfully deployed a tablet is Apple," Ms. Lopez says. "No one's upped the game. That's why no one's been successful. There's no compelling reason to buy anything else."

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Tablets running Android appear most likely to meet the challenge. Google's software powers a wide array of smart phones and tablets – in particular, Samsung Electronics Co. Ltd.'s popular Galaxy Tab. Android offers a similar experience to Apple's iOS, and is available off the shelf, for free and with thousands of developer-made applications, to any device maker in the world who wants to use it. Companies such as Motorola Mobility Holdings Inc. - which was acquired by Google for $12.5-billion on Monday - and Samsung have concentrated on hardware innovation while relying on Android to power the software on their smart phones and tablets.

RBC Dominion Securities forecasts that Apple's dominance will erode from nearly 90 per cent in 2010 to around 35 per cent in 2014, as more devices running Android and Microsoft's Windows Phone 7 platform flood the market, as well as proprietary systems such as QNX, which powers RIM's PlayBook.

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