Taiwanese Tablet PC Suppliers Should Look to Greater China Market: TRI

Costing only US$199 and compatible with a variety of application software and services, the Kindle Fire that was launched by Amazon.com is expected to become a trendsetter in the market for tablet PCs and quickly gain leading status among non-iPad tablet PCs worldwide.

With Apple and Amazon squaring off against each other in the global tablet-PC wars, Taiwanese players might be well advised to sidestep the increasingly fierce competition by turning to Greater China for more sustainable development, said Carlos Yu, a senior editor at the Topology Research Institute (TRI)'s West American research center.

Profitability of Better Integrated Software Services
The rise of Apple's iPhone and iPad has heralded the advent of the Post-PC era, in which hardware manufacturing will no longer be able to secure sustainable profits for PC companies; to survive and prosper, they will need to offer better integrated services and application software. They are indeed doing this, in a trend inaugurated by Apple and followed up by Amazon with its Kindle Fire.

Unlike the conventional Android tablet PCs that share access to Google's software and application services and differ from each other only in small hardware modifications that differentiate user interfaces, Kindle Fire incorporates the Amazon Elastic Compute Cloud (Amazon EC2), a cloud computing platform developed by the online bookstore, while retaining some of Android's built-in features together with YouTube.

With the platform constantly generating feedback from users as they browse the Internet, Yu noted, suppliers can build a huge consumer database of information related to online shopping habits, favorite websites, etc., for use in developing and providing more appetite-oriented application services, digital content, and products for their customers.

Yu sets the Kindle Fire apart from other Android tablet PCs, describing it as an open platform-based portable communication device that gives access to a closed platform-created online shopping environment. This indicates, Yu said, that the Kindle Fire will become a profit generator in the same way as the Kindle e-book reader, which helps Amazon to realize huge margins not just from the sale of hardware but also from exclusive access to Amazon's digital content. This means that Amazon can derive profits from the Kindle Fire through such application services as the Amazon MP3 Store and Amazon App Store, an important factor given the Kindle Fire's low retail cost.

Competitors to Be Crowded Out
Companies in the smartphone segment can make sustainable sales gains by working closely with telecom companies in the joint promotion of application services and the expansion of product diversity to attract consumers; however, Yu stressed, this business model does not seem to work with tablet PCs. As evidence of this, he cited sluggish sales of the WebOS-powred TouchPad by Hewlett-Packard and the BlackBerry PlayBook by Research in Motion. The success of a tablet PC, he explained, requires not only a good fusion of hardware and software, but also better integration of digital content and application services.

If Android tablet PC makers are unable to develop and supply better integrated digital content services, therefore, some of them will likely be crowded out of the competitive landscape by Apple and Amazon in 2012, and some will be forced to undersell their products and struggle with flat margins, predicted Yu. He added that the two leaders are expected to control an 80% share of the market that year at the earliest.

In the face of increasingly harsh competition, Yu indicated, some PC makers are likely to withdraw from the market to focus on the promotion of ultrabook laptops in the coming years, if the next-generation laptops prove popular with consumers. Yu also predicted that some players will also pin their hopes of a comeback on the launch of Windows 8.

Yu urged smartphone suppliers to take advantage of the increasing popularity of 4G networks such as LTE (long-term evolution) to develop better digital content services, and to cooperate more closely with mobile telecom operators in the joint promotion of tablet PCs bundled with service contracts. Yu is also optimistic that Google's Ice Cream Sandwich will help smartphone companies with tablet PC businesses, stressing that application software based on the newest open-source platforms is interoperable between a smartphones and tablet PCs, which will facilitate the development of digital content services that enhance their appeal to tablet PC users.

The China Potential
Few would question that China will be increasingly important as the world's major driver of growth in sales of PCDs in the years to come, said Yu, but the Chinese market is not open to all players because of its distinctive culture and consumer habits. Amazon, for instance, has said that it has no plans to enter China's tablet PC market for the time being mainly because the ways it promotes the Kindle Fire and Kindle e-book reader with consumer-oriented digital content services are likely to fail there.

With their shared culture and language, Yu said, Taiwanese suppliers are more likely than their foreign rivals to succeed in the Chinese market, and should build footholds there as soon as possible. He suggested that Taiwanese companies should move to fill China's huge market demand by coming up with digital content, cloud computing, and application software services fitted to the Chinese, or by developing innovative business models that rely on the fusion of Internet advertising and digital content services to sustain sales of tablet PCs.

Although hardware manufacturing is increasingly ineffective as a generator of sustainable profits, which is especially significant with the arrival of the inexpensive Kindle Fire on the market, Yu said, it is still possible for Taiwanese PC manufacturers to do well with their Blue Ocean strategies focused on the provision of innovative application services targeted at the Greater China market.

Tablet Sales by Asustek and Acer
With its Transformer tablet PC well-received worldwide, Asustek Computer Inc., a Taiwan-based PC vendor, has raised its projection for 2011 tablet PC sales to 2 million units.

Citing sales findings by market research bodies to prove popularity of his Transformer, Asustek general manager Kevin Lin indicated that while Apple commanded a 53% share of the Taiwanese market for tablet PCs in August, his brand was tops among the remaining vendors in the second quarter of this year. Lin said that the market currently needs about 40,000 to 45,000 tablet PCs a month, and that full-year sales are expected to reach between 500,000 and 600,000 units this year. This gives Asustek an opportunity to offset a decline in sales of its netbook PCs.

Unlike Asustek, Acer Inc. still has a lot of room for improving sales of its tablet PC, the Iconia Tab A100, which is housed in plastic and targeted at the low-to-middle-end segment. It is manufactured by Compal.

Despite carrying a lower price than an entry-level iPad 2 model, the Iconia Tab A200 is unlikely to challenge the iPad's leading status in the market. Sales figures for August, as reported by Context, put the Iconia Tab far behind the iPad, with Apple selling over 188,000 iPads in the UK, France, and Germany while Acer moved only 44,000 tablets.

Sales of Non-iPad Tablet PCs in Jan.-Aug. 2011
Manufacturer (TabletModel)	Sales Forecast	Sales Results	Contract Supplier
RIM (BlackBerry Playbook)	400,000 units per month	Some 700,000 units in RIM's fiscal Q1 and Q2	Quanta Computer Inc.
HP (TouchPad)	200,000-300,000 units per month	Supply stopped	Inventec Corp.
Acer (Iconia)	2.5-3 million units for 2011	To reach 2-2.4 million units	Compal Electronics Inc.
Samsung (Galaxy Tab10.1)	400,000 units per month	Banned in Germany due to patent issues	Manufactured in house
Asustek (Eee Pad Transformer)	2 million units for 2011	More than 1.2 million units in Q1-Q3	Pegatron Corp.