1. El Segundo, USA (HQ) Santa Clara, USA Scottsdale, USA Minnetonka, USA Hong Kong, China
Shanghai, China Shenzhen, China Hsin-Chu, Taiwan Tokyo, Japan Kyoto, Japan
Seoul, Korea Bracknell, United Kingdom Munich, Germany Herblay, France
Market Intelligence
Google set to dominate booming off-board navigation market.
iSuppli forecasts substantial growth in the off-board navigation
market. We estimate that the market will have a user base of 263
million by 2014, generating $9.7 billion in annual subscription fees
and ad revenues, up from $3.9 billion in 2010. iSuppli expects Google
Maps Navigation to continue to dominate the mobile off-board
navigation market with its ad-based business model. This segment
experienced a 118% growth in 2010, mainly due to preloaded, free
Google Maps Navigation on Android smartphones. Google’s success
will be supported by its strong Android devices sales, Google’s
constant improvement endeavors, as well as its other LBS, LBA and
SNS assets. However, Google faces challenges not only from privacy
issues and government regulations, but also from competition with
handset OEMs and OS vendors such as Nokia and Motorola, who are
also working toward offering their own navigation solutions.
EMS revenues rising, though ODM revenues/profitability remains
challenging. iSuppli has increased its revenue forecast for the global
outsourced manufacturing industry (EMS and ODM) for 2010. The
growth rate for 2010 has increased to 33.6%, compared to 24.52% in
our previous forecast, increasing 2010 global EMS and ODM revenue
forecast to $347 billion from $324 billion. Through 2014, iSuppli
forecasts the total revenue up from prior forecast of $454 billion to
$472 billion, with a CAGR of between 12%-13%, mainly attributable
to the strong growth of the EMS industry, which has recently
benefited from rapid growth in the Asia market as well as its attempt
to expand into traditional ODM territory.
ZigBee wireless standard making inroads with utility meters.
Smart devices to come later. iSuppli forecasts that ZigBee enabled
product shipments will grow to approximately 495 million units in 2014
from 19 million units in 2010. The key driver for this projected growth
is the adoption of ZigBee in the Smart Energy Utility Monitoring
application. iSuppli believes that it will be several years before
consumer appliances start incorporating ZigBee to realize the dream
of the “intelligent home,” and “mission-critical” industrial control
applications will be a difficult market for ZigBee to enter.
Financial Services
William Kidd
Director
310.524.4015
wkidd@isuppli.com
Sophie Gu
Senior Researcher
310.524.4092
sgu@isuppli.com
Cora Jin
Senior Researcher
310.524.4089
cjin@isuppli.com
Wenlie Ye
Senior Researcher
310.524.4064
wye@isuppli.com
Noteworthy Developments
Apple is now moving to sell software online
With Atheros, Qualcomm now well positioned to capture
opportunities beyond handsets
Windows targets a bigger role in tablets and smart devices,
consistent with our industry view
January 07, 2011
TECH
WEEKLY
S&P 500 Performance (LTM)
Source: iSuppli Corp. | January 2011
Off-board Navigation Revenue Forecast
Source: iSuppli Corp. | January 2011
Zigbee Semiconductor Market Forecast
2010-2014
Source: iSuppli Corp. | January 2011
2. TECH WEEKLY | Financial Services
2 01.07.2011
Market Intelligence
Google Set to Dominate Booming Off-board Navigation Market
iSuppli’s Portable Devices & LBS Research just released an important topical report on off-board navigation.
We estimate the market today at 62 million users globally, generating $3.9 billion in annual subscription fees
and ad revenues. (However, with more smart cars, smartphones and other devices coming to market, this
area should see substantial growth). iSuppli predicts that by 2014, the user base will swell to 263 million users,
generating $9.7 billion in revenues. Wireless service providers are major participants as they look to
subscription revenues (~58% of $3.9 billion) for such services. Google and its competitors are also looking to
monetize this growing market with mobile ad delivery services.
Figure 1: Off-board Navigation Revenue Forecast
Source: iSuppli Corp. | January 2011
The vast majority of off-board navigation usage will come from smartphones and cell phones (as opposed to
in-vehicle navigation board systems or PNDs). We divide off-board navigation into three segments: 1)
subscription, 2) one-time or pay per use navigation users, and 3) ad-based or sponsored navigation services.
Ad-based models assume a value per use that is paid by an advertiser. The ad-based value is estimated at
50% of the ad revenue generated by user.
For the ad-based navigation segment, the implications today are arguably more meaningful on public
companies, since the revenues are less fragmented. Growth has also been significant, with the user base up
118% in 2010, due to preloaded, free Google Maps Navigation on Android smartphones, released in October
2009. Google recently announced that more than 10 million users are using Google Maps Navigation monthly.
iSuppli expects ad-based navigation to take share from subscription services in coming years and ultimately
become the dominant model by 2017. As an aside, iSuppli expects the ad-based users to climb to 117 million
by 2014 from 2.8 million in 2009.
We expect Google Maps Navigation to continue to dominate the mobile off-board navigation market with its
ad-based business model. In 2010, Google's market share in the worldwide off-board navigation user base is
3. TECH WEEKLY | Financial Services
3 01.07.2011
already over 15%. iSuppli believes that off-board navigation providers, including major US carriers and
navigation brands, such as TeleNav and Networks In Motion, with subscription models will be most impacted
by the emerging ad-based navigation segment. With an average $9.99 monthly service fee, these players will
likely lose share to free applications, like Google’s.
Figure 2: Major Off-board Navigation Software Suppliers
TeleNav TCS / NIM TelMap Navitime Google
•BlackBerry, Motorola,
Sanyo, LG, Nokia, HTC,
Pantech, SE, Palm, HP,
UT Starcomm
•Shotgun PND
•iPhone, T-Mobile
G1/myTouch 3G
•Java/BREW
•BlackBerry
Windows Mobile/Palm
•J2ME, BREW,
WM devices
•GSM devices
•Gokivo Navigator
for Smartphone
OEMs
(BlackBerry,
iPhone, Windows
Mobile)
•Linux-based
MIDs
•Android,
BlackBerry OS,
Apple OS X,
LiMo, Symbian
S60, Symbian
UIQ, Windows
Mobile, and Java
•BlackBerry
Bold/8820
•Symbian; Win
Mobile
•Java and others
•Most
Android
devices
•AT&T
•Sprint
•T-Mobile USA
•Verizon
•Alltel
•Boost Mobile
•US Cellular
•Qwest
•NII (Brazil/ Mexico)
•T-Mobile UK
•Telcel
•Vivo (Brazil)
•Virginia Canada
•Rogers Wireless
•Bell Mobility
•Verizon Wireless
•AT&T
•Metro PCS
•Telus
•US Cellular
•Alltel
•Virgin Mobile
•3 Sweden
•
•AT&T
•Sprint
•Vodafone UK
•Vodafone D2
•Vodafone
Espana
•SFR
•Orange UK
•Orange France
•O2 UK
•Telefonica
Movistar
•Singtel Optus
•NTT
DOCOMO/Softbank
•KDDI au
•Chunghwa
Telecom, Far
EasTone
Telecommunication
s, Taiwan Mobile,
and VIBO Telecom
(Taiwan)
•N/A
Source: iSuppli Corp. | January 2011
There have been free off-board navigation applications before, but not with Google’s feature set. Key features
from Google include 1) local search query retrieving data from the cloud-computing Google search engine, 2)
voice activated search, 3) traffic overlay on map, 4) corridor search (search along route), 5) satellite view, and
6) street view. Danny Kim, iSuppli’s Automotive Infotainment & Telematics Analyst, expects Google to
continue to succeed due to the following success factors, while incurring several challenges before it
dominates the mobile navigation markets.
Google Success Factors
1. Android devices sales
Android-powered Smartphone sales have hiked over the past year. The regular users of Google Maps
Navigation are still around a quarter of all Android Smartphone users. However, this penetration rate of free
navigation among Android device users will increases exponentially as tablets become an alternative mobile
navigation device and more Android smartphones with advanced touch-screens will come out to support more
of Google Maps Navigation's advanced features.
4. TECH WEEKLY | Financial Services
4 01.07.2011
2. Constant improvements
In mid-December, Google introduced Google Maps 5.0 for Android with two significant new features: 3D
interaction and offline reliability, after adding the walking navigation function in Maps 4.5 version, which was
released one quarter prior. Google rebuilt the Maps using vector graphics, which gives it the flexibility to re-
draw the same map from different perspectives using the same set of data. Vector graphics also enable the
ability to continue viewing maps even with poor network connections - each vector tile works across multiple
zoom levels and requires less data to view maps across all levels than before.
3. Google's other LBS, LBA and SNS assets
Google has been delivering location based services for years. Its Google Maps application is available on all
mobile platforms and is often the first application downloaded when it is not pre-installed on a handset. Not
only does Google see mobile as its main business focus, but also an essential part of its mobile ecosystem.
As of August 2010, Google Maps for mobile had gained over 100 million users in the 5 years since its launch.
The functionality has already gone beyond providing simple directions from location to destination. To enhance
its content, Google has also created Places, which allows individual businesses to be visible with reviews,
ratings and other business information, including operation hours and contact information, etc. For a fee,
businesses can claim their location and add content such as images to their listing and have its listing appear
on top of the search results. At its launch in late 2009, 50 million places were available worldwide.
In addition, Google has also launched various social networking services such as Orkut, Latitude and Buzz.
This is an extension of Google's core capability of collecting user data and providing customized search results
combined with an interactive layer.
By acquiring AdMob, Google now has expertise in both mobile display ads, in-application ads and mobile
search advertising. Google recently introduced a new ad format for mobile devices: location extensions with
map features. Google has introduced the new location-aware advertising for iPhone and Android handsets
where advertisers now have the ability to select a location extension for display option that will serve up their
ads based upon a user's GPS coordinates.
Google has nearly 100% market share in the mobile search industry, but its mobile ad traffic is not as
impressive as what Google has on the web. As Apple pointed out with the launch of iAD, mobile browsing is
not the optimal or effective medium for mobile ad delivery. Now LBA is gaining momentum with smartphone
apps that can make content and advertising more relevant.
Google Challenges
Early on, iSuppli pointed out that Google would make its Maps application available on other platforms, but
that expansion of the application into Europe would be difficult because of regulatory challenges to at least one
of Google's popular maps feature - Street View. iSuppli also pointed out that the infrastructure in other
countries, on which its service base has not been developed to the same level of completeness as in the US.
And even before Google Maps Navigation was released, the company faced privacy concerns from individuals
as well as lawmakers from multiple countries on the continent. Besides these, the map data used in other
countries is not necessarily exclusively Google's proprietary map - Tele Atlas maps are still extensively used in
Europe, which made those markets more competitive.
Going forward, all handset platforms will have location APIs that convert location databases into geographic
coordinates for location-based app/service developers to utilize. Whether the location database is
commercially available data like Skyhook's or its own will be the choice of handset manufacturers.
Motorola, who is heavily tied with Google for its Android smartphones, is building Skyhook's location service
into much of its Google Android-based phones worldwide, replacing Google's built-in location service. iSuppli
believes that Motorola would like to leverage Skyhook's location database despite licensing fees to have
competitive advantage over other Android makers. More importantly, Motorola would want to control the
important technology platform on its own and build its own database going forward.
5. TECH WEEKLY | Financial Services
5 01.07.2011
In the mobile sector, Google may face increasingly stiff competition in Europe from Nokia, which has
significant smart phone market share. While Google was the first to offer free navigation on Android handsets,
Nokia matched the announcement with its own free premium navigation offer. Now Ovi Maps is free to install
on an increasing number of handsets, and it can be argued that the application is geared more towards the
European market than Google's application. With Ovi Maps it is possible to download and store maps on the
device, and use the full navigation application even without network coverage. This is a clear advantage over
Google's off-board server based application, which has to rely on network coverage to function. Since roaming
data charges remain high, this is a deterrent for the average user.
So, what is the incentive of handset OEMs and OS vendors in constructing their own location databases? First,
it will host more location-based service content and application service developers and eventually the end-
users would benefit from more and better location-based services. Second, it will host more mobile advertisers
in such location-based services. This is what Google and Apple are aiming to achieve. If Motorola and Nokia
are able to introduce their own navigation services, why can’t other handset manufacturers? That said, we
foresee more companies to enter the ad-based navigation market in the near future.
iSuppli Automotive Analyst Danny Kim
6. TECH WEEKLY | Financial Services
6 01.07.2011
EMS Revenues Rising, though ODM revenues/profitability remains challenging
iSuppli has increased its revenue forecast for the global outsourced manufacturing industry (EMS and ODM)
to $376.7 billion for 2011, ahead of our prior forecast of $360.2 billion. The increase is due to a stronger-than-
expected 2010, driven by better than expected results at several large EMS providers, and stronger than
previously anticipated EMS outsourcing trends in Asia and the Americas. However, the higher 2010 revenue
basis is leading to a lower long-term CAGR of 8.0%, versus 8.8% in our prior forecast.
For additional perspective on our EMS/ODM growth rate, our aggregate global electronic systems factory
revenue forecast equates to $1,636.7 billion in 2010 and has a CAGR of 5.8% over the same 2010-2014
period.
Figure 3: Global Outsourced Manufacturing Revenue Forecast (EMS & ODM combined) ($M)
Source: iSuppli Corp. | January 2011
EMS: iSuppli estimates the global EMS revenue to increase to $186.0 billion (previously $165.4 billion) and
$202.9 billion ($183.7 billion) for 2010 and 2011, respectively. Asia continues to be the most important regional
market for EMS. This is due to a combination of increased production for export in order to lower costs (e.g.
China labor rates)) as well as increased production for domestic consumption (China GDP in 2010 is close
10%). From an application point of view, wireless handsets continue to be an important growth driving,
offsetting weakness in areas like data processing and automotive.
Figure 4: Global EMS Revenue by Region and Application ($M)
Source: iSuppli Corp. | January 2011
7. TECH WEEKLY | Financial Services
7 01.07.2011
ODM: Although our 2010 and 2011 forecasts are only changed slightly, we did lower our long-term forecast for
ODM revenues due to the recent moves by several larger EMS providers to move directly into competition with
traditional ODMS as well as some incremental changes to iSuppli’s long-term end-market estimates.
Figure 5: Global ODM Revenue Forecast Comparison ($M)
Source: iSuppli Corp. | January 2011
Profitability:
Average gross margins for the 10 largest global ODM providers tracked by iSuppli declined by over 1%
percentage point compared to the year ago quarter and by nearly 1.60% points compared to the preceding
quarter. The sequential decline in gross margins was nearly universal with eight out of 10 ODM providers
tracked by iSuppli reporting lower margins in the September quarter relative to the June quarter. The primary
reason was the slowdown in demand for TV-related panels and units as well as pricing pressure due to
increased competition in the notebook PC segment. More display and TV-focused ODM providers reduced
utilization rates in the quarter, which impacted margins this past quarter. More computing-focused ODM
providers are looking to increase vertical integration as well as cull their current programs/new programs
where the margin profiles have become incredibly challenging. iSuppli believes margins should rebound in the
fourth quarter.
Figure 6: Gross Margin (%) by 10 largest global ODM providers
Source: iSuppli Corp. | January 2011
iSuppli EMS&ODM Analyst Thomas Dinges
8. TECH WEEKLY | Financial Services
8 01.07.2011
ZigBee wireless standard making inroads with utility meters; Smart devices to come later
ZigBee, based on the 802.15.4 standard utilizing the 2.4 GHz radio frequency, is a short-range wireless
networking standard for data acquisition, sensing, and control application. The main value propositions of
ZigBee are that it is designed to be simple, low data rate, low-cost, open standard technology that is also easy,
secure and scalable, targeting smart meters and appliances. ZigBee is already starting out as a lower-cost
solution versus Bluetooth. Single-chipset solutions had an ASP of $3.0 in 2007 and $2.0 in 2010. We expect
the price to continue to fall as penetration increases, believing a $1.50 chipset ASP could be achievable by
2012.
Zigbee is promoted by The ZigBee Alliance (similar in function to the Wi-Fi Alliance), which was formed to
specify the upper layers of the protocol stack, from network to application, including application profiles. It is
promoted by 14 companies including Cellnet+Hunt, Samsung Electronics, Huawei, Motorola, Ember Schneider
and Siemens, etc, and supported by other industry leaders such as Center Point Energy, Atmel, Fujitsu and
Hitachi, etc. As of December 2010 there are over 300 member companies in the ZigBee alliance. Essentially,
the ZigBee Alliance defines the network and applications software and will provide interoperability testing and
certification to ensure that devices from different manufacturers can be used within the same communication
system. The Alliance will also certify products that are ZigBee tested and approved.
Utility Metering
iSuppli forecasts that ZigBee enabled product shipments will grow from 19 million units in 2010 to
approximately 495 million units in 2014. The key driver for this projected growth is the adoption of ZigBee in
the Smart Energy Utility Monitoring application.
iSuppli believes that ZigBee is starting to gain traction in niche applications, especially smart energy metering
among utility companies— even though it has failed to meet the early hype of being the dominant technology
for wireless sensor mesh networking applications in residential, commercial, and industrial automation
applications. iSuppli believes that it will be the first application ZigBee will be successful with. The ZigBee
Alliance is actively promoting the standard, showcasing open houses with products from different vendors that
implement ZigBee to develop a wireless network within a home.
According to the ZigBee Alliance, 40+ million ZigBee electric meters are being installed in Automated Meter
Reading (AMR) applications by over 11 utility companies in the USA with major deployments in California,
Texas, Michigan & Virginia. In addition, 40 million meters (from utility RFPs) in the USA are in various stages
of business case development and rate approval with local regulatory bodies. In this implementation, the utility
company will use a wireline or cellular technology to communicate with the automated meter installed at the
side of the home and ZigBee to communicate between the meter reading and various thermostats, load
controllers, and appliances within the home.
In contrast with the utility market, iSuppli believes that “mission-critical” industrial control applications will be
difficult markets for ZigBee. Industrial systems that have sensor systems will tend to rely on mature wireline or
wireless technologies for a networking solution.
Home Automation
ZigBee is also trying to gain momentum in home automation for both residential (home) and commercial
building applications. This will encompass everything from controlling heating/cooling, smoke detectors,
lighting and security systems, especially in commercial buildings, in addition to the monitoring of gas, water
and electrical utilities. In this application, the driver is energy savings—HVAC systems and lighting that can be
turned on and off based on occupancy.
iSuppli believes that it will be several years before consumer appliances start incorporating ZigBee to realize
the dream of the “intelligent home.” And iSuppli believes that ZigBee will be battling against Bluetooth and
wireless USB for PC peripheral slots, such as keyboards and mice.
10. TECH WEEKLY | Financial Services
10 01.07.2011
Noteworthy Developments
Apple Is Now Moving to Sell Software Online
Yesterday, Apple debuted its new Mac App Store. After successfully moving from music, films and television
shows, iPhone/iPad apps, and most recently books, newspapers and magazines, Apple is now attempting to
expand its retail success into software. With this portal, Mac users will now be able to purchase/download
complete software solutions such as iWork and iLife directly from Apple with relative ease, not just simple,
smaller apps. This makes Apple’s move important since the goal is likely to make as much software as
possible available through this channel, reducing/eliminating the need for CDs and DVDs for software media.
For software retailers, Apple’s Mac App Store is undoubtedly a source of concern given Apple’s retail success
stories to date.
For consumers, the benefits are compelling: 1) Instant gratification and ease of use with “one-click download
and install” and 2) cheap pricing with no shipping costs. Consumers aren’t required to support physical costs,
such as duplication and transportation costs, associated with traditional software sales, whether through retail
or online channels.
Apple also benefits by empowering its devices that don’t have optical disk drives, such as CD or CD/DVD.
Now such devices, like the Macbook Air and other new devices, can be equipped with less hardware,
benefiting weight, battery consumption and BOM costs, and still possess the same functionality as devices
with embedded or external disk drives. Ultimately, Apple’s efforts could help PC devices evolve off such drives.
Last but not least, we have been arguing that Mac OS will ultimately be on more devices (and have a touch UI
some day), in the same way Windows is now planning. Having internet available for delivery of software is an
important step for that future transition, since most smart devices won’t have physical disk drives, but still need
access to software (not just apps).
Figure 8: iWork/iLife - Mac App Store Price Comparison vs. Select Online Retailers (as of 1.6.11)
Source: iSuppli Corp. | January 2011
11. TECH WEEKLY | Financial Services
11 01.07.2011
With Atheros, Qualcomm Now Well Positioned to Capture Opportunities Beyond Handsets
Qualcomm starts 2011 off with a bang by entering into a definitive agreement to acquire Atheros at $45 per
share (up from $37 prior to the announcement) in cash, representing an enterprise value of $3.1 billion, per
Qualcomm’s press release. The transaction, pending domestic and foreign regulatory approvals, is expected
to close in 1H 2011 while the complete merger of the two companies’ operations is anticipated to be in 2012.
According to Steve Mollenkopf, EVP and group president of Qualcomm, the Atheros acquisition brings
complementary synergies to Qualcomm, who will be able to utilize Atheros’ connectivity products and
technologies to capitalize on the growing ubiquitous connectivity potential that is currently developing across
mobile phones, computing, and consumer electronics. Dr. Paul E Jacobs, Chairman and CEO of Qualcomm,
also commented on the acquisition.
“It is Qualcomm’s strategy to continually integrate additional technologies into mobile
devices to make them the primary way that people communicate, compute, and access
content. This acquisition is a natural extension of that strategy into other types of devices.
The combination of Qualcomm and Atheros is intended to accelerate this opportunity by
utilizing best-in-class products for communications, computing, and consumer electronics
to broaden existing customer relationships and expand access to new partners and
distribution channels.”
The current Atheros president and CEO, Dr. Craig H. Barratt, is expected to join Qualcomm as president of
Qualcomm Networking & Connectivity.
Atheros is a global leader of bandwidth intensive WiFi technology solutions. The company has had
tremendous success in consumer applications, but hasn’t had much success penetrating the handset market.
The merger works in favor of both companies at the handset level. According to iSuppli Communications and
Consumer Electronics analyst Jagdish Rebello, “Together, Qualcomm and Atheros have the option of offering
a high performance WiFi solution. In addition, their individual expertise (Qualcomm – Baseband, Atheros –
WiFi) allows the joint entity to create a Baseband + WiFi combo, a killer solution for the handset space.” In
addition, as WiFi becomes more and more applicable and embedded in TVs, STBs, and other CE devices,
Qualcomm can now leverage Atheros’ success in the CE market and expand out of the handset space to
pursue the fast growing connected home opportunities.
Qualcomm and Atheros already have a mature working relationship through reference designs and common
design wins. However, Qualcomm did not acquire Atheros to gain market share in wireless. Rather, it did so to
1) synergize and 2) expand out of handsets. Qualcomm already has in-house Bluetooth and WiFi capabilities.
However, the acquisition adds to Qualcomm’s design capabilities, and also increases the company’s exposure
in non-handset devices such as tablets. Tablets present a significant opportunity for the new Qualcomm.
According to iSuppli Wireless Analyst Francis Sideco, “not all tablets will have 3G or 4G capabilities built in,
but all tablets will have WiFi. Now, Qualcomm will be able to make a play in 100% of all tablets whether
through 3G/4G or WiFi/Bluetooth or both.” As an aside, iSuppli forecasts that there will be over 57m tablets
sold in 2011 and 98m sold in 2012, up from 17m units in 2009.
The acquisition also pits Qualcomm directly against Broadcom, who has been very successful in connectivity
solutions (Broadcom owns the WLAN slot in the Apple iPhone). Sideco believes that it is only a matter of time
before an EvDO and/or LTE iPhone is introduced. With Qualcomm virtually owning the entire EvDO market,
the company will need to be involved on the baseband side for such a phone and Qualcomm could potentially
try to put together a package to win the WLAN slot from Broadcom.
iSuppli Wireless Analyst Francis Sideco
iSuppli Communications & Consumer Analyst Jagdish Rebello
12. TECH WEEKLY | Financial Services
12 01.07.2011
Windows targets a bigger role on tablets and smart devices, consistent with our
industry view
At CES, Microsoft CEO, Steve Ballmer's keynote speech addressed the future of Windows, saying he sees a
world where Windows' "full PC productivity" will be brought to a wide range of hardware form factors. Microsoft
showed off demos of a new unreleased version of Windows (using the existing, old Windows 7 UI) already
running on ARM-based mobile processors using system on a chip (SoC) architectures, designed by Nvidia,
Qualcomm and Texas Instruments. However, Microsoft did not unveil the new touch-based, tablet UI that
would surely come with this new version of Windows. Microsoft was also quiet on the timing of the release of
this new version. The overriding message of Ballmer's address was clear, saying "Windows PCs will continue
to adapt and evolve. Windows will be everywhere on every device without compromise".
In our recent tablet industry report, published last month, we argued that Microsoft and creation tablets,
enabled by embedded/wireless keyboards and mice as well as an operating system like Windows, will soon
transform consumption-based smartphone tablets into more functional compute devices. Our future vision
implies a world where many, if not most, notebooks are tablets, saying that tablets with Windows make the
device more of a form factor improvement for PC devices. Our view is quite a contrast to many who still see
tablets as a new category, dominated by smartphone players like Apple and its iPad. Because of our view, we
believe Apple will be more challenged by Microsoft-based tablets than most other contenders, arguing that the
ability to run traditional applications software, possess full file format/data compatibility and true network
connectivity, all of which enabled by Windows, will be compelling applications, limiting the overall proportion of
less capable, consumption-based smartphone tablets, like the current iteration of Apple's iPad. That's not to
say we don't believe Apple won't evolve. We believe Apple will empower its Mac OS with a tablet UI, like
Windows will soon do, in order to address these same applications. However, as Windows becomes more
formidable, Apple's dominance of tablets will lessen.
Another important aspect of this evolution is the development of a tablet UI for Windows, although not
demonstrated by Ballmer at CES. Thus, Windows still needs to clarify when a new UI will be available, though
the on-going development of a tablet UI is a certainty in our minds. Today, tablets are essentially powered by
smartphone O/Ses, which have fairly limited UIs, utilizing apps icons for presentation and control. The
interface is a natural fit for a small smartphone screen. However, given the tablet form factor and the difficulty
of using traditional Windows on touch devices, the evolution of a tablet-specific UIs for Windows is paramount,
since it would address arguably its biggest weaknesses. This weakness is severely limiting Microsoft's
presence in tablets. Windows is also limited by its reliance on Intel, limiting Microsoft's role in mobile devices.
Lenovo, at CES, showed off their own custom tablet navigation tools to help simplify Windows. However, the
lack of a true tablet UI is also one of the biggest weakness of Apple's iPad, running its iOS, a smartphone O/S.
Thus, we believe Microsoft's role in tablets as well as Apple’s dominance will likely dramatically change as the
present UI bottleneck is overcome. That said, until Microsoft shows off Windows with a tablet UI, this present
Apple weakness will likely continue to be overlooked.
Intel/Nokia are also addressing the limitations of smartphone-based tablet UIs by designing one of the first
tablet-specific operating systems, MeeGo. A company named UI Centric has also already developed a tablet
UI for Windows, now named "Macallan", which also does a good job of showing the difference between tablet
and smartphone UIs.
13. TECH WEEKLY | Financial Services
13 01.07.2011
Figure 9: Consumption Tablets Dominate Figure 10: Creation Tablets Create Larger Market
Source: iSuppli Corp. | January 2011
Figure 11: O/S Will Play Larger Role in CE Devices
Source: iSuppli Corp. | January 2011
