A company that is in trouble will often deliver what poker players call a “tell.”
They will head into the “value” segment of the market. They’ll go cheap.
I have seen this foolish strategy practiced many times in technology over the years and it never works. A brand has to stand for something beyond price if it is to have any meaning.
I can certainly understand the motivation, of course. Companies need volume to remain relevant, and when they’re losing volume because their brand reputation is in tatters, the value segment is seen as a lifeline.
Nokia Corporation (ADR) (NYSE:NOK) Tries It Again
At the annual Mobile World Congress in Barcelona this week, Nokia Corporation (ADR) (NYSE:NOK) is actually trying this trick for a second time.
You remember Nokia, don’t you? They used to be the big name brand in mobile telephony, back when mobile phones were basically phones and texting was considered high-tech.
They’re no longer the big dog. They lost their lead to a host of smartphones to which they had no reply, starting with those of Apple and continuing to those running Google Android. These days, while rivals like Samsung reschedule their launches for New York, Nokia CEO Stephen Elop is stuck trying to drag a few MWC reporters into his press conference.
There he’s trying to get some volume on the low end, with yet-more feature phones, while hoping he can gain a little more traction with Windows Phone units under the Lumia label.
I think CNET put it best here.“The Nokia 720, considered to be at the higher-end of the lineup, feels more like a midrange device.” Ouch.
The company’s stock has mirrored this dramatic fall. Back in 2008 it sported a 83 cent quarterly dividend and stood proudly at $36/share, a bargain. Today the dividend is down to 25 cents/share, but that still means a 6.62% yield because the shares are priced at $3.81 each. And, because Nokia is no longer profitable, pushing out that dividend is eating its own seed corn.
So it’s no surprise that they’re still trying to push volume, but it’s more like an anorexic who is heavily into exercise. Without the food of full price sales you’re still going to look horrible.
Hewlett-Packard Company (NYSE:HPQ) Into the Value Pool
Hewlett-Packard Company (NYSE:HPQ) got a huge pop last week, an earnings release that was deemed not half bad and sent shares soaring, right after I called such a move inconceivable. (I don’t think that means what I think it means.)
Still, I’m a lot more comfortable in my negative view of the company having seen its “big” MWC announcement, a 7-inch tablet priced at $169 called the Slate 7.
There are analysts who think HP has “done tablets right” by embracing both Microsoft Corporation (NASDAQ:MSFT) Windows 7 and Google Inc (NASDAQ:GOOG)‘s Android – the new tablet is an Android. But the screen has a minimal display, minimal memory, and it’s slow. It’s running a standard version of Android, which is good, but it’s obviously aimed at the “value” segment of the market.
The tell is in the company’s press release. Notice the phrase “consumer tablet” in the headline? That’s a tech term meaning, essentially low end.
That segment does not exist in computing. Because Moore’s Law constantly pushes value up and prices down, anything aimed at the “low end” is basically fighting free. Today’s value product is tomorrow’s trade show giveaway.
HP has been around long enough to know this. I remember getting real excited when they launched calculators that ran on solar power back in the 1980s. By the 1990s the children of those calculators were landing in my trade show gimme bag. It’s a cliché, a cliché that originated at HP, and here they are delivering the same song again. Different verse? Not likely
The Foolish Play is To Aim High
It’s in the nature of technology that it drives down the cost curve, and through the marketplace. The profits are at the top end, the volume at the low end, but when you’re buying volume you’re also fighting obsolescence.
After following technology for three decades this lesson is deeply ingrained in me. Every once in a while someone questions the relevance of Moore’s Law, but then I wait a year or two before reminding them that it does, indeed, remain relevant, the basic law of the industry.
Don’t fight the basic law of the industry. When you see someone doing that, you know they’re in a rowboat that is sinking. They are bailing as fast as they can. But you don’t want to be there.
If and when Nokia or HP gains traction on the high end of the market, I would be interested. Not before.
The article Can Hewlett-Packard (NYSE:HPQ) Succeed Where Nokia is Failing? originally appeared on Fool.com and is written by Dana Blankenhorn.
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