With Tablets Potentially Being Free, PC Makers Expected To Withdraw From Tablet Market

It is not much more than a rumor, but we believe there is some credibility that PC makers may not be willing to keep investing in a market that may have huge volumes but not deliver any profits. Will the tablet market remain an iPad market and simply birth additional, new Kindle and Nook markets?

Tablets are, just like smartphones, platform devices and not just a collection of hardware pieces. The simple fact that there cannot be an unlimited number of platforms, it appears that major PC vendors may leave the tablet market and focus on other PC opportunities, such as ultrabooks. Digitimes reports that upstream supply chain companies are expecting tablet PC makers to gradually phase out their tablets since they cannot expect any profits in this segment.

Apple iPad 2

Apple is dominating the segment at this time and is predicted to continue doing so at least through 2013, while Amazon and Barnes&Noble are pushing into this segment with $199 and below tablets. The entire business model could be shifting to platform and services profits with hardware being given away for free. While that prediction is standing on thin ice, there is good reason to believe that tablets will need a supporting platform to survive. If Amazon and Barnes&Noble are, for example, able to leverage their service profits against the retail price of their tablets, it will be tough for other tablet makers (without a platform) to compete. The value is clearly in services and software, not in the hardware.

Interestingly enough, Digitimes also indicated that Apple’s iPad 2 is still seeing strong demand, but overall sales were actually lower than those of the original iPad, which leads industry suppliers to believe that the interest in tablets could be fading. Business Insider recently quoted a Goldman Sachs report, which indicated that Apple may be coming under pricing pressure to support iPad 2 demand. Analyst Bill Shope mentioned that the iPad ramped much faster than any other Apple product (especially the iPod and the iPhone) before and that it will need more platform support (in the form of iCloud, Siri) as well as a price drop to sustain its momentum. At the very least, he expects a $399, 8 GB version of the iPad (which may not be such a smart move as 8 GB for apps may not be enough, if there is not flash card expansion slot).

So, could tablets have been just a fad? What about all those predictions that more than 240 million tablets may be sold annually by 2015?

If you have followed our coverage, then it’s no secret to you that we just don’t buy into market forecasts that cover an evolving market four years into the future. Anyone could predict anything at this time. There is, in our opinion, a very high likelihood that tablets are just a temporary hype and possibly transitionary devices to a product that is much closer to a notebook than a tablet. The usage scenario of a tablet is casual computing and being a complementary device to your PC, at best. The industry typically refers to tablets as lean-back devices rather than lean-forward devices (notebooks). You consume content on a tablet, you don’t create. An example would be the task of editing a document on a tablet via Google Docs, which is a pure nightmare as you can’t control the display of the keyboard during certain tasks and the options to edit a document are very limited. I personally have given up trying to replace my notebook with a high-end tablet for content creation purposes.

Earlier today, market researchers from IHS predicted that less than 1 million ultrabooks will be sold this year, but more than 136 million by 2015. Sure, ultrabooks have had a more than problematic start, which was due to a lack of innovation and the simple thought that a thin notebook could be sold to the consumer for twice the price of a regular mainstream notebook. The current notebook is not a representation of what an ultrabook can be. There is much more to this segment and if PC vendors are able to exploit an opportunity to innovate, they will, more than likely, see a growth and profit opportunity.

Wolfgang Gruener in Business on November 17