30 Tablets in Q4 2010: packed train arriving at empty station

[There are 30 tablets coming by Q4 2010, but who is going to buy them? Guest author Jonathan Goldberg, Research Analyst at Deutsche Bank breaks down the supply and demand equation behind the emerging tablet market, and discusses why the impending tablet wave might be a full train arriving at an empty station]
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30 Tablets in Q4 2010

The key issues

The tablet market is opening up, with at least 30 tablets coming by Q4. Here are a few key issues:

  • There are indications of at least 30 tablets coming to market by Q4. And there are reports of at least 80 to be launched in the next six months.
  • There is no hard data available about consumer usage of tablets. This might mean that most of the tablets will be undifferentiated and it is unclear who, if anyone, will buy them.
  • The leading brands in the space this Q4 are Apple, Dell and Samsung. Other major brands are expected to enter the market in 1Q11, including HP Palm, Motorola and RIM
  • Most of the tablets are using Android, but we hear that Google has been trying to discourage many of these projects. They do not support Android for use in tablets with the current Froyo V2.2 of the OS. This means some of the tablets coming this year may lack access to the Android marketplace, Google maps, etc.
  • All of the tablets we have seen run on ARM-based processors. Major suppliers will be Qualcomm for the 3G baseband and integrated applications processors. We have seen tablets using applications processors from Marvell, Nvidia, Samsung and Texas Instruments. There are also a number of designs using silicon from Atheros, Broadcom, Skyworks and Triquint. In theory, this could be good for these vendors, but the looming glut of product may dampen enthusiasm for the category.
  • Pricing will be a key determinant. Most reports peg low-end models at $300 or less. However, there are reports of prices ranging as high as $900. I believe there will be few takers for tablets priced above the iPad.

Overall, everyone likes the idea of a tablet, but I think it will take a year or two before the market shapes up. There are just too many devices coming online amid very initial interest from consumers. Eventually, the tablet may become a preferred media consumption device for consumers, filling the gap left by underpowered netbooks. There is likely room for both netbooks and tablets in the market, but it is too early to gauge the size of the tablet market.

What’s a tablet?

Any discussion on tablets needs to start with a definition. For our purposes, we will define them broadly to include anything that is not a smartphone or a laptop. These devices have no hinge as laptops do, but cannot easily fit in a pocket. This covers considerable ground from e-readers to true tablet computers.

Most of the tablets coming to the market today are less mobile than smartphones, but have essentially the same computing power. The iPad is the best example of this. The electronics of an iPad are identical to an iPhone – same processor, same memory. It does have longer battery life, but no one would argue that it is less portable than a phone, since it does not fit in a pocket.

These facts seem somewhat incongruous, leading to several interpretations. The first is that with time tablets will see an increase in computing power. In fact, there might be a few of these more powerful tablets in the works for next year. Another interpretation is that Apple has just confused the market, which they can get away with because of the power of their brand. They positioned the iPad to fit into their own product line-up, not to meet industry expectations. It will be interesting to see if any of the tablets coming out later this year have noticeable performance deficiencies, in the form of hang time and slow app loading. A more gloomy interpretation is that this is a dead-end form factor. While I’m more optimistic than that, I believe the OEMs should seriously question what ‘need’ a tablet addresses for consumers.

 

What is the Tablet Market?

To better assess the potential for the market, we need to deconstruct it a little. First, it is worth considering who has bought a tablet so far. Then we should consider what they are doing with those devices, and finally compare that to what the devices are capable of. As with all such new products, there is very little hard data available, but here’s what we know so far.

Who is buying tablets? So far, there are really two products that fit into this category – the Kindle and the iPad. Amazon has not released any data on Kindle sales, but they continue to roll out new models, so it must be doing well by some internal metric, and most reports indicate Kindle is helping to expand overall book sales by Amazon. Apple has sold over 3 million iPads since its launch last quarter, and Deutsche Bank estimates are at 12 million unit sales for this year. That’s an impressive number for a new product, but a small number relative to everyone else’s expectations for the category. It is still unclear who is buying these. By some estimates, a very large percentage of iPad buyers are already iPhone owners. There is a lot of synergy between the two with easy syncing of content and Apps via iTunes.

There is also a lot of anecdotal evidence to suggest that the iPad has broadened the demographic group of iPhone buyers. For instance, some people have bought the device for parents and grandparents, reaching a group who is uninterested in the Apple brand but like the ease of use of the device.

What are people doing with tablets?

While waiting for further hard data on iPad usage, we can look at iPad developer activity and app downloads as a decent proxy.

Developers, for their part, seem very interested in the iPad. In the graph below you can see iPad apps versus iPhone apps, in terms of available apps in iTunes plotted against days since the release of each of the two products. iPad apps have outpaced iPhone apps in growth, although we should take into account that writing an iPad app today is much easier than writing an iPhone app when iOS first got a start, three years ago.

According to Distimo, developers for the iPad also seem to be taking advantage of a wider variety of iOS features such as in-app purchases. The Distimo data also shows that as a percentage of apps, games are more prevalent on the iPad than the iPhone. Prices for iPad apps also tend to be higher than comparable (sometimes identical) iPhone apps. From this, we infer that developers see this as a worthwhile market, and possibly one with a superior demographic for paying for software.

iPod&iPad apps vs days after launch

What it all boils down to is a lack of actual data. While there have been some consumer surveys done on the space by tablet vendors, this is really a virgin market. No one knows what consumers want from a tablet or whether they even want one at all.

I am actually somewhat optimistic about the tablet as a concept, but I think the excitement will outpace demand in the near term. There is also a gap between laptops and smartphones, that gap will find interest from some consumers, as was the case with initial excitement for netbooks. Consumers want low-priced computing devices that have larger screens than a phone. This market was artificially capped by Intel and Microsoft who sought to stave off cannibalization of their laptop business. The end result was that consumers lost interest in underpowered netbooks, which struggled to multi-task or play high quality video.

The first devices available run iOS and Android, but they will by no means be the only offerings. Google is likely to enter the fray soon with Chrome, an OS originally built for netbooks, but equally applicable for tablets. Google has even made comments that Chrome is the preferred OS for tablets. Beyond this, however, there will be other options. HP will likely have a Palm webOS tablet out soon. Blackberry has announced a new OS for their PlayBook device available early next year. And even MeeGo has to be considered a potential entrant. Although I’m skeptical about this OS’s prospects, many reports indicate that MeeGo is actually very well suited for a larger form factor like a netbook or tablet. Perhaps the only entrant I would not add to the list is Windows 7 (Big windows not Windows Phone), since conventional widom is that this OS is just not suitable to the touch-screen form factors that are quickly becoming standard for this class of device. There is a video making the rounds on the blogosphere that shows how clunky the Windows 7 interface is with touch-screen input.

In this year’s race to launch tablets, it seems like few companies have given much thought to the software experience. Most of the companies launching tablets appear to be using Android. This is despite that company’s weak support for Android on this form factor. It appears that many of the Android tablets launching this year will NOT have links to the Android marketplace as the FroYo (2.2) release is not really designed for tablets starting from the screen resolution. I believe Google is encouraging hardware makers to hold of on Android tablets until the Honeycomb release due out next year. This implies that many of the Android-based tablets coming out this year will have very few apps and limited ability to download them. Effectively, these tablets will be large, expensive browsers.

Competition

The tablet field is expected to be very crowded, from as early as 4Q10. Below is a table compiled from a range of sources, including news reports and blogs. There might be some discrepancies, especially on pricing, but many of these devices have been officially announced.

List of tablets planned for 4Q10

And this list is by no means complete. There is also this user-generated list of Android tablets coming for Christmas. At the time of writing there were 22 models listed. As if that were not enough, here is another list of all 73 tablets rumored or announced so far.

In terms of official developments, Samsung has officially launched its Galaxy Tab, RIM has announced its tablet and, most recently, reports emerged on the web that Amazon was preparing its own Android tablet and Android marketplace.

A key question will be pricing. There is no seen official word on this, but some press reports indicate the Galaxy Tab device will cost $900+ without a carrier subsidy. As PC World points out many of the tablets coming to the market are charging a premium to the iPad. Maybe Samsung can pull that off, but few other tablets will be able to command a premium to an Apple product.

Conclusion: Who benefits from tablets?

The answer to that is that there are too many tablets coming to market too soon. With no hard data about consumer usage, it’s likely that most of the products will have a hard time differentiating themselves. This will probably lead to a glut that will mean pricing pressure for most of these vendors.

From the component level, the biggest beneficiaries are the screen vendors. Capacitive touch screens are not cheap, and are probably the most expensive component in the bill of materials. So far we have seen few tear-downs of any of these tablets. The iPad BOM is very similar to the iPhone and iPod touch, running an Infineon 3G baseband, Skyworks and Triquint’s front-end modules, and the internally developed Apple A4 processor. It is likely many of the Android tablets are using Qualcomm’s Snapdragon or other MSMs for 3G connectivity. Also, there are reports that tablets makers are trying out Nvidia’s Tegra, TI’s OMAP and Marvell’s Armada for applications processors.

Finally, investors will have a hard time tapping into this. On the one hand, price competition from a multitude of Android tablets would imply lots of volume. On the other hand, design wins are not free; they cost upfront engineering resources. A glut of product could lead to inventory back-ups and order declines in Q1. For the time being, my view is that tablet volumes (other than the iPad) are likely to remain small relative to PCs and handsets. Nonetheless, we should expect a shake-up next year as suppliers pick their battles carefully.

– Jonathan

[Jonathan has been a Research Analyst at Deutsche Bank for 8 years and focuses on wireless technologies and the Mobile Internet. He can be contacted at “jonathan.goldberg (at) db (dot) com”]

MeeGo: Two (M)onkeys don't make a (G)orilla. But they sure make a lot of noise

[What is behind the announcement of Meego operating system by Nokia and Intel? Guest blogger Thucydides Sigs deconstructs what Meego means and its importance to the mobile industry]

How much substance is behind the noise of Nokia’s and Intel’s announcement of Meego? A few points to consider.

Nokia, who feels threatened by Google’s Android and Chrome OS efforts, is putting significant  efforts in order to expand into other device categories and bring its Ovi services to more consumers in more places. So a move that brings Maemo – together with Ovi (and the underlying Web-runtime apps and Qt cross-platform) to Intel chipsets is a straightforward strategic win. It will allow OVI services – such as Maps – to get into non mobile devices, especially Automotive (which has been a strategic focus for Intel) and other connected (but wired – after all power consumption is Intel’s Achilles heel) devices such as home phones.

So is Nokia going to bet it’s future Linux devices on a group of Intel engineers? Nokia is smarter than that: Intel software engineering has never been something to write home about. And Nokia has always been careful in maintaining and winning control over strategic areas. So Nokia will either maintain a parallel internal effort or maintain tight control over the ARM port and the overall MeeGo architecture.

Is MeeGo going to really bring Ovi services & Maemo into the hands of tens of millions more consumers? Well, MeeGo open’s a door, but success will depend on the quality of Maemo and Ovi experience. Maemo v6, due late this year, will be catch-up to where Android and WebOS were half a year ago, and were Apple was a year ago. So it is still one or two years behind the rest of the industry. That said, Maemo does not need to be the best – it needs to be good *enough* for ‘mass market’ consumers, so that combined with Nokia industrial design expertise and marketing power, an “object of desire” can still be delivered.

It’s this consumer “Desire” that brings us to the Ovi Services angle – and the question of how good will Nokia Services offering will be. Studying the NexusOne, it is impressive to see how Google seamlessly connected it’s many service offering – creating a compelling integrated experience. From a photo gallery that is both local and web (Picassa), through Google Voice (low cost calls, transcribed voice messages) and an almost perfect navigation and mapping experience (including turn-by-turn voice instructions and maps). Contacts, Email, Calendaring are the basics that are a must have. And Google is quickly expanding into other services (note the recent Aardvark acquisition and Buzz launch). Yes, MeeGo gives Nokia a vehicle to bring Ovi to some other device segments, but can Ovi compete effectively with Google’s breadth of services?

What about Intel? It has been spending hundreds of millions of dollars on a software strategy which does not seem to show a clear path to recouping the investment. Moblin, has not been able to ship in any significant volumes, is inferior to either ChromeOS or Android from a software platform perspective, and lacks any kind of services offering (which is why they needed Ovi). If Intel thinks that software is another part of it’s vertically integrated stack that will differentiate the chipsets, then it does not make sense to open it up and make it an open industry initiative. If Intel truly believe that Moblin should be open and used by competing ARM chipset vendors, then what does it gain from spending those hundreds of millions of dollars on the effort?

Open Source: ChromeOS, Android and Maemo are creating a very different software ecosystem then the one Intel got used to with Microsoft in the 90s. None of the software players is going to generate significant revenues on the device side. Intel exec’s might  want to re-read Andy Grove book, step outside the box and ask themselves if their software effort still makes sense in the 2010 industry context.

And while Intel is spending time on building this software strategy, the chipset market is experiencing a disruptive change, shifting from computing power (where good enough performance is delivered by both Intel and ARM), to battery power and mobility where ARM is clearly superior.  It might be better for Intel to focus it’s efforts back on it’s chipset technology and fix its power consumption problems, because when it comes to wireless devices (either within the home or outside, anything that is not tethered to a power cord), their offering is inferior to ARM, and no amount of software will be able to cover this gaping hole.

What about the rest of the chipset industry? Would the other ARM chipset vendors, such as TI, Qualcomm, Broadcom and nVidia follow path and join MeeGo? It’s hard to imagine that any of those companies will want to entrust their software strategy in the hands of Intel: not only is Intel a direct competitor, it software skills leave a lot to be desired, and it’s long term commitment to the space (as outlined above) is not clear. Is Nokia’s involvement enough of a carrot to entice those vendors into MeeGo? Having Maemo running on top of MeeGo will make insertion into Nokia easier, but Maemo is open source and there is nothing holding the chipset vendors from porting Maemo to their chips on their own or with the help of other independent 3rd parties. So we suspect Nokia will give it a modest try, but when it comes to purchasing chips, power, performance and cost will still be the over-riding criteria for Nokia.

So, lots of noise that those two monkeys are making, but little impact. MeeGo seems to be cute (qt) and (h)armless, but not a big industry changer.

– Thucydides

[Thucydides Sigs – a pseudonym – has many years of experience juggling computing constraints, mobile software and consumers needs. With that said, imagine listening to a violin sonata not know who the artist is or who composed it. You end up having to listen more carefully in order to make a judgment. He can be reached at thucydides /dot/ sigs [at] gmail [dot] com]