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H.P., Tech Powerhouse, Stumbles in Smartphones

Hewlett-Packard is one of the world’s most successful makers of desktop computers, laptops, servers and printers. It owns a powerful consumer brand, and it is a growing provider of services for businesses. In the first quarter, the company’s sales rose 8 percent.

But in smartphones, H.P. has been on a steady slide into irrelevance.

Sales of H.P.’s hand-held products, including its iPaq smartphone, dropped to $25 million in the quarter, down from $57 million in the same period last year. Apple , by contrast, had sales of $5.6 billion for iPhones and related products during its most recent quarter.

The iPaq Glisten smartphone by Hewlett-Packard.
Hewlett-Packard
The iPaq Glisten smartphone by Hewlett-Packard.

H.P.’s anemic performance in the smartphone market has left analysts perplexed. Globally, unit sales of smartphones are now running just about equal with laptops, and by 2012, smartphone sales are expected to eclipse the entire personal computer market.

The world’s largest computer maker is on the verge of missing the next great phase of the computing revolution.

“We are trying to figure out whether H.P. wants to be in the smartphone game or not,” said Kevin Restivo, an analyst with the research company IDC. “Whatever the strategy is, H.P. needs to move quickly right now, because we’re in the halcyon days of smartphone growth, and it won’t last forever.”

H.P. acquired the iPaq line of personal digital assistants in 2001 when it bought Compaq Computer. The first phone version, running Microsoft’s Windows Mobile software, appeared in early 2007, and H.P. recently released its latest model, the iPaq Glisten.

But H.P. has put little effort into the design or marketing of the devices, and the iPaq has been overshadowed by products from companies like Research In Motion, HTC and Apple that look better and cater more effectively to customers looking for both business functions and entertainment in one device.

H.P.’s stumble — a rarity under its chief executive, Mark V. Hurd — comes despite the company’s repeated insistence over the years that it wanted to be a big player in smartphones.

In 2006, for example, H.P. broke off hand-helds as a separate business unit, saying the split would help the division capitalize on the fast growth of smartphones and related devices. In addition, H.P.’s current head of hand-held products, Steve Manser, previously led product development at Palm, a pioneering smartphone maker, and the unit is part of H.P.’s personal systems group, which is headed by Todd Bradley, Palm’s former chief executive.

H.P. continues to say that it is serious about smartphones, even though sales of hand-helds have fallen about 80 percent over the last five years. “We are committed to the phone space,” said Phil McKinney, the chief technology officer in H.P.’s personal systems group, in a recent interview. However, he declined to discuss the company’s future smartphone products or plans.

Smartphones offer hardware makers a way to build more extensive relationships with customers. Apple has delivered more than three billion software applications through the store tied to its iPhone. Now, it is looking to expand sales of software and content through the iPad, a tablet computer due out next month.

Researchers at H.P. have talked for years about software and services that will let people print easily from their phones, manage their photos in new ways and communicate with each other through mobile versions of social networks.

While prototypes of such services exist, full versions have yet to make their way to H.P.’s iPaq.

Analysts say that it is not too late for H.P. to turn around its smartphone business. Despite being in the phone market for only two and a half years, Apple ended 2009 as the third-largest smartphone maker, trailing Nokia and R.I.M., the maker of the BlackBerry. While smartphone sales over all grew 15 percent last year, Apple’s surged 82 percent.

H.P. also has valuable access to retail stores through its personal computer and printer businesses. About 86 percent of Windows-based smartphones are sold through such stores.

But the longer H.P. dallies, the stiffer the competition gets. Acer, the world’s second-largest PC maker, has already made a vast commitment to the smartphone market. It bought a smartphone maker called E-Ten in 2008 and has released about 10 phones over the past year, including devices that run both Windows and Google’s Android software.

At the Mobile World Congress held in Barcelona, Spain, last week, Acer unveiled a wide variety of upgraded smartphones at a large, rented compound planted in the middle of the show grounds.

“From our point of view, it’s important to become the No. 1 seller of mobile products,” said Gianfranco Lanci, the chief executive of Acer, in an interview at the show. “Smartphones will become bigger than laptops, and it’s a huge opportunity.”

H.P.’s top PC competitors, including Dell, Lenovo and Asustek, also had new phones on display.

H.P., meanwhile, came off as a virtual nonentity at the show, which is the global cellphone industry’s biggest annual event. The company made no cellphone announcements, saying only that it would begin selling a tiny Android-based laptop that runs on a low-power ARM chip designed by Qualcomm.

Although Microsoft says that it expects H.P. to offer a smartphone later this year that uses the newest mobile version of Windows, Mr. McKinney of H.P. steered away from the subject in the recent interview.

Indeed, H.P. seems to be putting more focus on products just to the side of the smartphone category. Noting that there is already a lot of competition in the cellphone market, Mr. McKinney pointed to a slate computer that H.P. will release this year to compete head-to-head against Apple’s iPad.

“I am not going to say we are not focused on phones, but we are looking to see if there are opportunities in these new kinds of form factors,” Mr. McKinney said. H.P. is experimenting with mobile devices that have varying screen sizes, he said. “There is clearly a gap that has opened up for a device that has north of a 3.5-inch screen and less than a 9-inch screen.”

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