Tablets: The scramble to be second

On stage at the Consumer Electronics Show in Las Vegas in January, Samsung executive Doug Albregts showed off the Korean electronics giant's new e-book reader. It had a 10-inch display, a slide-out control pad, and could download books from Barnes & Noble. Users would be able to make notes and doodle on the virtual page. "Our goal at Samsung, whenever we enter a new arena, is not simply to join the conversation but to transform and lead in a new direction," Albregts told the audience.
This month, days before the eReader was to hit stores, Samsung delayed the launch and called the device back for retooling, said a company employee who asked not to be named. Samsung may add a color screen, 3G wireless capability, and a better battery, this person says. "Samsung is revisiting its approach to the e-reader market in the U.S.," spokeswoman Katie Seifert said in a statement.
In the wake of the launch of Apple's iPad on Apr. 3, hardware companies are doing a lot of high-tech soul-searching about the tablets they have in the pipeline. Along with Samsung, Hewlett-Packard, Dell, and AsusTek are reassessing the tablet market.
Much is at stake in getting it right. Although tablets are projected to make up only 1 percent of computer sales this year, that could rise to nearly 25 percent by 2015, according to Coda Research Consultancy. "Everyone expected the iPad to come out at twice the price with half the battery life and half the performance," says Jeff McNaught, an executive at Wyse Technology, a maker of software that lets people view their Windows desktop from an iPad or other devices. "Lots of plans we saw last year have now been dumped. Nobody has called to say products have been scrapped, but they've gone silent since the iPad shipped."
Hewlett-Packard presented a Windows-powered tablet called Slate at CES in January and wrote about it on its Web site. The company hasn't promoted the device since early April. A few weeks later, it bought Palm, the struggling handheld maker known for its easy-to-use software, for $1.2 billion. HP won't comment on the status of the Slate, and many analysts believe HP will now design a tablet using Palm's software. If HP "does a consumer tablet, it would clearly be based on the Palm [operating system], not Windows," says analyst Tim Bajarin, of Creative Strategies, a consultancy. He said Windows software was not adequate for touchscreen technology as sophisticated as the iPad's. "The vast majority of customers want a PC that can do it all," says Microsoft spokesman Bill Cox.
Dell will introduce a 5-inch tablet using Google's Android operating system in June. It is in the process of redesigning follow-on devices to deliver larger screens and new software by early next year, says Neeraj Choubey, director and general manager of Dell's tablet group. Jerry Shen, CEO of Taiwanese PC maker AsusTeK, says his company is accelerating its development of an Android-based tablet. The company still will sell a Windows version. One advantage of Android, developed by Google, is that it runs about 40,000 applications, over 30 times more than Windows' 1,200 mobile apps. Verizon Wireless says it is in talks with Google about creating a tablet.
Apple's rivals may have trouble coming up with an iPad-beater. Apple chose every part in the iPad to conserve power. The company used a specially designed battery, as well as custom-made microprocessors. With other products, it has often turned to chips made by Intel or designed by ARM Holdings. "The battery life on this thing is like black magic," says Dave Eiswert, who runs T. Rowe Price's Global Technology Fund. Designing components in-house hasn't been the norm at companies like Dell and HP, which in the past have outsourced design to Taiwanese manufacturers to cut costs. Both companies are expanding their own design teams.
The PC giants have a reason to hope they can keep pace. There are only 5,000 apps designed for the iPad. That means Apple's head start will not be as formidable as it was with the iPhone, which now has more than 195,000 apps.
Theo Gray, co-founder of software maker Wolfram Research, recently ditched his laptop and used only his iPad on a business trip. "It was totally fine," says Gray. "In terms of trend-setting, it's already too late. Apple has set the trend. The only question is whether everybody else can catch up."
The bottom line: Tablets may reach 25 percent of the PC market by 2015, which puts pressure on Apple's rivals to respond to the million-plus-selling iPad.
Edwards is a correspondent in Bloomberg Businessweek's San Francisco bureau. Burrows is a senior writer for Bloomberg Businessweek, based in San Francisco.
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