Tablet PCs Future Uncertain

Updated: New shipment forecasts show that despite early predictions to the contrary, tablets may not break into the mainstream anytime soon.

Tablet PCs cant catch a break.

The fate of the pen-driven, portable PC category, which got a boost in 2002 when Microsoft Corp. first rolled out its Windows XP Tablet PC Edition software, is uncertain, as some analysts have begun to lower their long-term growth projections for the category and Microsoft remains mum about its future tablet operating system plans.

Despite early expectations—the Tablet PC Edition OS provided an easier method of allowing people to navigate their computers with a pen, make digital annotations and capture handwriting, while a new "convertible" form factor was more like a traditional notebook—tablets have failed to woo mainstream business users and consumers as quickly or as easily as initially expected, market watchers say.

The machines, which have caught on in areas such as health care and education, are thus likely to remain trapped in those niches for some time to come, forecasters now say.

Roger Kay, president of Endpoint Technologies Associates and a former International Data Corp. analyst, issued a dire forecast for the market.

Kay, in a report published late last week, predicts that tablet shipments will total less than 4 million units per year by 2009, well below some recent forecasts, which had predicted shipments as high as 14 million during the same time period, he said.

/zimages/4/28571.gifClick here to read more about tablet comings and goings at Fujitsu Ltd. and Hewlett-Packard Co.

Kay argues: "Rather than becoming a general-purpose computing platform, tablets will settle in as a long-term niche product."

Tablet projections have already been lowered by some. But those revisions didnt account for what he says is the machines long-term niche status.

"The revisions did not actually change the slope of the adoption curve, just pushed it out farther in time," his report said.

Kays report predicts tablet shipments of about 3.5 million in 2009, split between about 1.2 million slates—a smaller form factor favored by companies such as Motion Computing—and 2.3 million convertibles, which look like a regular notebook, but feature a screen that rotates 180 degrees and folds down face up to present a writing surface.

Kays forecast contrasts with a recent projection of 14 million unit shipments by 2009 made by IDC, he said.

Some of tablets toughest troubles are pricing and marketing. Although costs have come down, the machines still command a premium of about $100 over traditional notebooks.

Meanwhile, despite helping out individual PC makers with co-marketing, Microsoft has done little else to help broadly promote the category, he wrote.

"Microsoft will attempt to promote tablet adoption by tying functionality to other products, such as Office and Explorer, but will not take extraordinary steps—such as a huge advertising campaign, extremely liberal use of market development funds, and dramatic decreases in the cost of the Tablet OS—to widen with market further," he wrote.

/zimages/4/28571.gifClick here to read more about one potential Microsoft alternative to todays tablets.

Kay isnt the only analyst taking another look at tablets. Gartner Group plans to drop its tablet forecast for this year, slightly, due to slower than expected first-quarter shipments, said Leslie Fiering, vice president of mobile computing research at the Stamford, Conn.-based firm.

"Our premise, from day one, was [tablet sales] would be very, very slow," Fiering said.

Although she declined to release Gartners latest projections for the tablet shipments, Fiering said that Gartners outlook has been historically lower than Microsofts. One past Gartner forecast predicted tablet shipments of 225,000 at a time when Microsoft expected 1 million, she said.

Gartner is currently predicting that, for the 2009 calendar year, tablet shipments will total 7.2 million in a best-case scenario and 1.6 million in the worst-case scenario.

The most likely case, however, will see tablets unit shipments total 3.5 million, Fiering said.

Although IDC has yet to update its forecast, Windows XP Tablet Edition machines havent taken off the way some might have expected them to, said IDC analyst Richard Shim.

"Theyre hugely disappointing in terms of shipments, considering the amount of hype that was generated when they first came out," Shim said.

"Even now, manufacturers say that certain niche verticals such as health care and government are where theyre targeting their efforts. But theres no indication theres pent up demand [in those or other markets] or much interest beyond a novel curiosity."

Microsoft, for its part, maintains that Windows XP Tablet Edition PC sales are tracking well.

"Sales continue to grow quite strongly," said Chris Barry, group product manager for Tablet PC. "Were happy with OEM and partner commitments to the platform."

This past February, tablets passed the 1 million units sold mark, Barry said.

Furthermore, they grew 25 percent between Microsofts third fiscal quarter, which ended on March 30, and fourth fiscal quarter 2005, a period that ended June 30. Although he would not say what those sales were, however.

When asked why he thought analysts were revising their tablet forecasts downward, Barry had no comment. However, he said Microsoft remains committed to the platform.

"We continue to invest heavily in the Tablet platform itself," Barry said. "In the Vista time frame, expect broader availability of these (Tablet) features."

However, he declined to provide details on what broader availability of tablet-like features might mean for the category—including whether or not Microsoft intends to release a separate Tablet PC Edition or not when Windows Vista, the next major revision of Windows, comes out in 2006—or what affect it could have on the category.

Tablets and notebooks have already begun moving toward each other, Microsoft has said.

Kay, in his report, as well as a number of Microsoft partners say they believe the software giant has already decided to fold features such handwriting recognition and digital ink for annotations into the core Vista platform. Meanwhile there was no separate Vista Tablet Beta 1 release, for example.

The change in strategy has the potential to make regular notebooks more tablet-like.

"The tablet PC is a generally good idea, and Microsoft is especially motivated to have a success in this form factor," Kay wrote.

"One issue facing the company is how Longhorn…is going to make a splash when most of the new technology is hidden in the system. One good way is to have new form factors enabled by the new OS. Tablet functionality built into the OS is one way to help create a feeling that Windows Vista really is revolutionary."

But not all PC makers will actively use the features in all of their systems for reasons of cost or functionality, he added.

Regardless, tablets will continue to face four barriers to broad adoption, Fiering said.

The four include making tablets more usable. Tablet remains a set of extensions grafted on top of Windows, she said, and some of the functionality still doesnt work or work well.

Meanwhile applications still lag, while ergonomics issues inherent to pen-computing have yet to be solved and prices remain higher than standard notebooks.

Ultimately, "Were very bullish in the long term about Tablets," Fiering said. "But a lot of things have to come together to make [its success] happen."

Editors Note: This story was updated to include more information from Gartner Group.

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