SCOTTSDALE, Ariz. March 3, 2011-This morning, Apple took the wraps off the iPad 2, which includes a 1.2GHz dual-core A5 processor, front and rear cameras, an upgraded OS (iOS 4.3), and slightly lighter weight than the previous iPad.  The most significant change is the processor.  Apple is claiming twice the CPU performance of the previous A4 processor and nine times the graphics performance.  While the CPU upgrade is likely just a doubling of the ARM Cortex-A9 used in the A4 processor, it is unclear what upgrades lead to the significant GPU performance increase.  In-Stat presumes Apple is using multiple Imagination GPU cores in the A5 and at a higher clock frequency than the A4 to achieve the added performance.  Other enhancements to the platform include a gyroscope, which could be used for gaming and other applications, and the choice of a black or white bezel.  Pricing begins at the same price points as the existing iPad at $499 for a Wi-Fi only device with 16GB of storage up to $829 for a 3G-enabled device with 64GB of storage.

As expected, the iPad 2 is a typical upgrade to the previous generation with more performance and many of the consumer requested features, mainly the cameras and colors.  And, as is typical for Apple, the iPad 2 still does not support external memory upgrades, a changeable battery, or the ability to run Flash.  The iPad 2 will be available from both AT&T and Verizon, which leads us to assume that the iPad 2 will likely support the 4G networks from both vendors in the near future.  In earlier discussions with the carriers, it appears that AT&T seems content with its pay-as-you-go service for tablets, while Verizon will continue charging consumers new data contract fees for tablets.

“So, when you compare the iPad 2 to the most recent competitor, the Xoom from Motorola, you end up with two devices that are very similar all the way down to the basic specifications of the processors,” says Jim McGregor, Chief Tehnology Strategist.  “The Xoom has the upgradable options and Flash support, while the iPad 2 has a lower price tag and a more robust software environment, including both the OS and the applications.”

Of the 100+ other tablets set to enter the market shortly, look for more of the same, because the current surge is just their effort to enter the market quickly.  In-Stat expects future generations to begin to offer more differentiation in form factor, features, and applications.

A year through the hype, what should we expect from tablets?  They are currently selling at just over 2 million units per month, which is respectable for a consumer electronics device, but well below the devices they resemble most – PCs and smartphones.  So, what is a tablet and what should we expect?  From a technology perspective, it is more like a smartphone, but from a usage perspective, it is more like a PC.  So, is this a new companion device or does it cannibalize the PC and/or the smartphone?  Is this a several million unit a year product segment or a billion unit a year segment?  Judging from some of the 200+ million unit five-year forecast other analysts are touting, it would seem to be the latter.  However, I’m not sure I would put it into that category just yet.  We should not forget that there are still many factors that will determine the growth and adoption rates of tablets, including:
The carrier business models.  A small percentage of the population is willing to pay for 3G/4G access when they need it, especially when the device is Wi-Fi-enabled.  And, an even smaller number are willing to pay for a new contract for each new device.  However, if the carriers finally offer a single plan for a single user that applies to all devices, this could fuel rapid growth and usage and an anywhere-anytime solution.

The usage models.  Everyone is still trying to determine the usage models of tablets.  Is it primarily a game console, an e-reader, a social networking device, or an IP video phone?  The answer is all of the above, but it depends on the user and the environment.  Some applications, like video telephony, have been around for decades but have failed to gain wide consumer adoption.  Maybe the latest generation of smartphones and tablets will finally lead to the success of video telephony.  In any case, the devices and the applications will eventually need to target these usage models, because there is seldom a one-size-fits-all solution in the consumer market.

The view of tablets by consumers.  Is this a “must have” device or just a “nice to have” device.  Although it can do many of the same things as a PC and smartphone, it doesn’t execute voice calls or enable content creation particularly well.  And are consumers willing to carry tablets all the time like a handset or with a handset?  Once again, it depends on how consumers intend to use their tablet.
The prices.  Although prices on some tablets, including the iPads, are competitive for the mainstream, it is still on the rather high side for CE devices.  Will the increased competition bring these down into the $199 to $299 range, especially when consumers are looking for advanced features?  Prices alone could help determine the overall size of the market and how rapidly it grows.

For now, In-Stat is still on the more conservative side with a forecast of 118 million in 2015, because of the relative immaturity of the tablet market.  Just like smartphones, we believe that the tablet market will eventually be a market with many sub-segments based on usage.  We also believe that the demand and ultimate size will be driven by innovation in the technology, the usage models, and the business models, which In-Stat continues to analyze.  Besides, many of the same forecasters predicting the astronomical growth rates for tablets were predicting similar sky-high forecasts for netbooks and smartbooks just a year ago.

For more research on the tablet market, including customer perceptions, visit In-Stat’s Portable and Computing Connected Devices service at http://www.in-stat.com/catalog/wcatalogue.asp?id=27 or contact Elaine Potter at epotter@in-Stat.com or 480.483.4441.

Jim McGregor
Chief Technology Strategist
In-Stat
jmcgregor@in-stat.com

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