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Tablet PCs: An Overnight Sensation


FEBRUARY 26, 2003

NEWS ANALYSIS BusinessWeek Online

Tablet PCs: An Overnight Sensation
After just three months, it's quickly becoming clear that the new technology is gaining wider acceptance than even Microsoft expected

When Microsoft Chairman Bill Gates unveiled Windows XP Tablet PC Edition in November, 2002, he predicted that in five years, tablet PCs will be the most popular type of personal computer. Author Amy Tan and actor Rob Lowe raved about how the tablet gets their creative juices flowing: Lowe reads and marks up movie scripts on his tablet, and Tan draws pictures and jots down ideas for her novels. But analysts remained unconvinced. Market researcher Gartner forecasted in November that by the end of 2004, only a measly 3% of all notebooks purchased will be tablet PCs.

After just three months, though, analysts are reworking their estimates -- higher. While new numbers should be released in the next several weeks, the anecdotal evidence speaks clearly. Tablets -- full-powered computers built inside portable touch-sensitive screens that can be scribbled on with a digital pen -- are flying off the shelves. Best Buy (BBY ), which has been selling Toshiba's Portégé 3500 tablet through its Web site since November, is sold out, says Kevin Winneroski, the retailer's director for mobile computers.

In the next month, Best Buy will start offering tablets from several other manufacturers as well. And it also plans to start selling the Toshiba model at its brick-and-mortar stores, Winneroski says. In December, Toshiba had to ramp up its tablet production by 35% after a month's supply disappeared in two weeks.

NO-CLICK NOTE-TAKING.  Hewlett-Packard (HPQ ), whose $1,699 Compaq Tablet PC TC1000 is one of the lower-price tablets now available, has exhausted its demo packs as corporations flock to evaluate the product, says Ted Clark, vice-president for tablet PCs and handhelds. HP just received an order for 1,000 tablets, he says.

While it will likely take a year to two for the tablets to enter the mainstream, it's already obvious that Gates & Co. has scored a hit. Users love the ability tablets offer to take notes, make sketches, and circle and underline text with a digital pen. They're a noiseless alternative to clicking on a keyboard during meetings or lectures. And, unlike paper notes, the electronic files can't be as easily lost.

While tablets will evolve over the years and might not resemble today's versions, their key features -- and Microsoft's (MSFT ) tablet operating system -- would likely make their way into nearly all laptops in five years, predicts Rob Enderle, an analyst with info-tech consultancy Giga Information Group. While only 2% of notebooks will offer screens that can take notes by the end of 2003, that will jump to 25% by yearend 2004 as corporations upgrade their computers, he estimates.

GLITCH-PRONE.  However, the tablet still has lots of maturing to do for Gates's dream to come true. Many of today's models are too heavy to carry for a long time. ViewSonic's PC V1100 weighs 3.3 pounds. Battery life is generally too short for comfort, averaging two to four hours. And many of the devices don't offer enough memory and computing power to satisfy users in markets such as research and education.
In addition, the operating system's ability to convert handwriting into typed text suffer from glitches. Most important, with the average price around $2,000, tablets are too costly to appeal to the mass market, says Roger Kay, an analyst with tech consultancy IDC.

Still, these problems should be fixed within the year. And the tablet has already won many users' undying love. "I hated that my PDA [personal digital assistant] didn't talk to my laptop," says John Williams, chief information officer at Massachusetts Institute of Technology. Now, Williams, who used to scribble on his PDA and type on his laptop, uses his Acer tablet PC for both tasks. "I am convinced tablets are going to replace laptops," he says.

HYBRIDS COMING.  Before that happens, however, manufacturers will have to come up with the right kind of design for the machine. ViewSonic's PC V1100 is simply a tablet screen that has no keyboard. It could find fans among specialists such as doctors, who might want to jot down notes while visiting patients. And HP offers a tablet screen that can be converted into a desktop PC if attached to a keyboard and a special stand.

Such convertibles should be most popular with corporate customers, who increasingly use laptops instead of traditional desktops, says Enderle. Still, the ultimate solution would probably look more like today's notebook but equipped with a touch screen, he says.

Battery life has to improve as well. The current two to four hours between recharging is inadequate for users who might have to sit in meetings for the better part of a day. NEC (NIPNY ), which announced the world's thinnest tablet PC -- the 1.5-inch-thick VersaPro -- on Feb. 18, plans to sell a three-hour, $99 replacement battery, says Joe Harris, director of product marketing for NEC Solutions America. When the tablet becomes available in a few weeks, NEC will also offer a $149 battery deck, which can recharge up to four tablet batteries at the same time.

A better solution may be coming by yearend 2003, when fuel-cell-based power sources make their debut in PCs, says Enderle. Then, a tablet might go without recharging for two days, he says.

NOT GOOD ENOUGH.  Tablet PCs' computing power should jump later this year as chipmakers like Intel (INTC ) roll out their new mobile processors, offering higher performance. Intel says its Pentium M chip, due out this spring, will offer the most computing power of any mobile chip (see BW Online, 2/11/03, "Whoa! Intel's New -- Slower -- Chip?"). Today, MIT's Williams still has to use his laptop whenever he works on software development, which requires lots of memory and processing power. His tablet, after all, has only 256 megabytes of memory, not nearly enough for the memory-intensive database work he does.

Handwriting-recognition software, built into Microsoft's tablet operating system, also needs to improve. It works right about 90% of the time, says Keith Morrow, chief information officer of convenience-store giant 7-Eleven (SE ), which has bought about 30 tablets in November. That's not good enough for filling out orders.

Most important, tablet prices have to fall. So far, HP has discovered that customers are willing to pay a $200 to $250, or a 20% to 25%, premium over regular laptops, says Clark. Still, clients like 7-Eleven are holding off on mass purchases until prices on tablets fall to 5% to 10% above the price of traditional notebooks, says Morrow. For now, 7-Eleven store associates tally inventory and make orders on different handheld devices.

"IMMEDIATE TRACTION."  Nevertheless, tablet sales are ahead of Microsoft's most hopeful estimates, says Alexandra Loeb, a vice-president in charge of the company's tablet effort. In addition to early adopters, students, artists, and professionals such as doctors are snatching up tablets.

And while only a dozen PC manufacturers took the chance on tablets in November, the market is getting plenty of newcomers, and orders are building. Starting in 2003, Britain's largest computer company Viglen, which specializes in the education market, has begun ordering 1,000 tablet PCs a month from Taiwan's First International Computer, a contract engineering and manufacturing company. "Companies have realized there was an immediate traction," says Mike DeNeffe, marketing director at chipmaker Transmeta (TMTA ), which makes processors for several tablet PCs.

Certainly, it will take several years for most corporations to join the pioneers and for the machines themselves to improve. But Microsoft, which has already plowed hundreds of millions of dollars in handwriting recognition over the past 10 years, is increasing its spending to develop the software, says Loeb. While it's far too early to predict that tablets will be the de facto PC in five years, they're sure off to a good start.

By Olga Kharif in Portland, Ore.

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