Seems HP’s new CEO Mark Hurd was wholly unconvinced of the logic of a major systems and services company reselling Apple’s iPod on wafer-thin margins — the company announced it will end the deal in September. And not before time, either.
The deal looked like an own-goal from the outset, and I said as much in my blog in September 2004 in which I asked the question "HP: To Invent or Not to Invent?"
Content from our partners
While many set about coming up with a player of their own to try and give Apple a run for their money, the then HP CEO Carly Fiorina’s decision to back the iPod looked at odds with the slogan, ‘HP Invent’. Even Dell – not known for being on the cutting edge of consumer gadgets – managed to come out with its own MP3 player before HP had shipped its first iPod. Dell’s device may not quite have the cachet of an iPod, but you can be sure that Dell makes serious margins peddling its own little gizmos. Image: Fiorina brandishes an iPod (source: Joe Cavaretta/AP) 
If there was any of the Compaq engineering talent still left at HP — many are thought to have left since the acquisition — it would have been great to see them try their hand at an iPod killer. It was a Compaq team that came out with the iPAQ, let’s not forget, which itself quickly rose to dominance in the handheld business computer category.
The Wall Street Journal has it on good authority that a non-compete clause from the Apple deal means that HP will not be able to partner with another digital music player maker or launch its own until August 2006.
Perhaps Hurd has plans for HP to come out with an iPod competitor when the non-compete clause expires. Perhaps not. It’s likely this decision was made based on simple mathematics. While HP’s iPod sales were not inconsiderable — accounting for around 8% of the 6.2 million devices that Apple shipped in its latest quarter, and an average of around 5% each quarter — the question is one of margins.
HP lent its distribution channel of up to 100,000 outlets worldwide to the iPod, but Hurd obviously doesn’t think the company got enough revenue from the relationship to make it worth continuing.
There may be other vendors happy to lend their distribution channel to the iPod despite relatively slim margins from doing so: it’s not so much that it’s likely to be unprofitable, it’s just that with relatively meagre profits it’s not an area a company like HP should be spending too much attention on.
However with Apple now having a far greater direct retail presence than it did back in 2004 when the HP deal was first brokered, it’s possible that Apple no longer needs a channel partner like HP. In fact with Apple hoping to cross-sell the Mac mini, iMac and numerous iPod accessories to today’s iPod buyer, it may suit Apple just fine to drive people to its online and bricks-and-mortar stores anyhow.
