Hewlett-Packard Unplugs Its IPod Deal

Hewlett-Packard Co. on said Friday that it would no longer sell Apple Computer Inc.’s popular iPod music player, just weeks after the two Silicon Valley companies agreed to expand their relationship.

HP declined to explain the quick reversal, saying only that the iPod “does not fit within HP’s current digital entertainment strategy.”

Analysts noted, however, that the initial high-profile alliance was crafted by former Chief Executive Carly Fiorina, since ousted by HP’s board. HP spokesman Ross Camp said the decision to pull out was made by the company’s “digital entertainment team,” but he added that Fiorina’s successor, Mark Hurd, “is aware of all the agreements that are made with major partners.”

“Obviously, Mark Hurd sets the tone and vision,” Camp said.

The decision leaves Palo Alto-based HP without a portable music player in its otherwise extensive digital media product lineup, which includes devices such as projectors and digital cameras. The rest of the lineup will remain in place, Camp said, adding that the company wasn’t shifting focus.

Apple spokeswoman Natalie Kerris declined to say how the move would affect the Cupertino, Calif., company, which has sold more than 20 million iPods since introducing the device in November 2001.

Some analysts saw the announcement as a move by Hurd, who was called in to replace Fiorina in March, to set a new course.

“The Apple deal was a Carly deal,” said Shaw Wu, an analyst at American Technology Research. “He’s making his own mark on the company.”

The move startled some in Silicon Valley because it came soon after a July 1 announcement that HP would begin selling the iPod shuffle -- Apple’s newest version of the player.

“The timing of this is a little bizarre,” Wu said. “HP just weeks ago expanded their relationship with Apple by selling Apple’s iPod shuffle player. Now, all of a sudden, they’re cutting it off.”

Others said Hurd was refocusing the company on core products that are profitable.

“What this shows first and foremost is that HP wasn’t making much, if any, money on reselling iPods,” said Stephen Baker, an analyst at NPD Group Inc.

HP is not entirely without a digital-music offering, said Tim Bajarin, president of technology consulting firm Creative Strategies Inc. The company sells a hand-held computer called the iPaq, which in addition to a calendar and an address book, has the ability to play video clips and music.

“In the end, HP probably concluded that the stand-alone MP3 player is a market that is fundamentally dominated by Apple,” Bajarin said. “So for HP, they would have to create something richer to compete. They can, for instance, evolve the iPaq into a more consumer-oriented music and video player.”

Apple loses a distribution partner that has been responsible for 5% of iPod sales since January 2004, when the two companies struck their deal. In the three months ended June 30, however, HP’s share grew to 8% of all iPods sold, or roughly 486,000 of the 6.2 million players sold.

“Apple iPods have met and exceeded our expectations” for sales, said HP’s Camp.

Analysts say that in the short term, HP’s withdrawal could lead to a slowing of iPod sales but that Apple would have little trouble regaining momentum.

“The long-term impact on Apple is next to nil,” Baker said. “Apple has proven they can get their products out there with no problems.”

Consumers probably will see little effect from the change, given that HP’s iPod is virtually identical to the Apple-branded version.

Camp said HP would keep selling iPods until supplies run out, which is expected to happen toward the end of September.

Shares of Apple fell $1.15 to $42.65 on Friday. HP shares gained 13 cents to $24.62.