Taiwan Today

Using a tablet computer is like a breath of fresh air. Light and portable enough to slip easily into a handbag, backpack or briefcase, tablets are making people wonder how they were ever able to put up with lugging around a 2–3 kilogram notebook PC. And most tablets are ready to work in the neighborhood of 20 seconds after being switched on, which means no more staring at interminable splash screens waiting for the device to boot as is the case for a notebook PC. Tablet applications are also fast, colorful and finger friendly, with no mouse required. For those who need to take a snapshot now and then, a built-in digital camera eliminates the need to lug around yet another gadget, while gamers can download a favorite title, then watch as their tablet transforms instantly into a gaming console. Best of all, manufacturers say that batteries last for 10 hours or more. That means the tablet user can enjoy playing games, watching videos or surfing the web for hours at a time.

The portability, speed, convenience and versatility of tablets have not only injected a long-missing sense of fun into the computing experience, but also made them one of the world’s hottest-selling consumer electronic products. Taiwan, of course, is known for its prowess in manufacturing information technology (IT) products, so it is no surprise that local companies are increasingly turning their attention to the booming tablet market. During the Mobile World Congress electronics trade show held in Barcelona, Spain in the middle of February this year, for example, Taiwanese consumer electronics giants Asustek Computer Inc., HTC Corp. and Acer Inc. all flaunted their latest array of tablet PCs.

These touch-screen gadgets, most of which come in super-slim designs with 7 or 10 inch (18 and 25 centimeters) screens, are Taiwan’s answer to the iPad, the tablet computer introduced in April 2010 by Apple Inc. of the United States. Despite some earlier industry skeptics who panned the iPad as “a magnified version of the iPhone,” Apple’s tablet took off, posting sales figures that surprised many in the IT industry. More than 14.8 million iPads were sold in 2010, of which some 7 million sales took place during the fourth quarter, showing that consumer demand for tablets is strong. The numbers certainly attracted the attention—and likely envy—of PC, smartphone and notebook makers worldwide.

To put the iPad’s sales figures in perspective, Taiwan’s Asustek Computer, the world’s No. 6 PC brand, reported selling 16.9 million notebooks—including its flagship Eee PC netbook computers—throughout 2010. That meant the iPad—which is just one product in an Apple lineup that also contains notebook PCs—came close to reaching the combined sales of all of Asustek’s notebook and netbook PCs.

At a suggested retail price for the least expensive model of US$499, market analysts predict that iPad sales will reach around 40 million units this year. Another 15 million to 20 million tablets other than iPads are likely to be sold this year, according to the analysts. Strong international players aiming for a share of those sales include mainland China’s Lenovo Group Ltd., Canada’s Research in Motion Ltd. and Hewlett-Packard Co. from the United States.

Determined Not to Miss Out

Local manufacturers like Asustek face a tall order in competing with those companies, as well as with the iPad, but the tablet computer market constitutes a battlefield that Taiwanese consumer electronics makers say they are determined not to miss out on. “We mobilized 200 software engineers who previously worked on smartphones to switch course to tablets,” Asustek CEO Jerry Shen says. The firm believes it could grab a slice of the sizzling-hot tablet pie by drawing on its earlier success of pioneering netbook PCs in 2007, he says. Similar to tablets, netbook PCs also have displays ranging from seven to 12 inches and relatively low-power processors, although they have keyboards that give them a strong resemblance to the notebook PC.

Asustek is not shy about its ambitions in the tablet PC field. According to Shen, the company aims to grab at least 10 percent of the “open tablet market” and reach as many as 2 million units sold this year. By open market, Shen refers to operating systems (OS) designed to run on hardware produced by multiple companies. One such OS that is now gaining popularity is Google Inc.’s Android. “The iPad is a ‘closed market’ as its operating system and software applications can be used only with Apple products,” he says.

Meanwhile, Acer, one of the world’s top-three PC brands, is setting its sights on seizing 30 percent of the open tablet market, translating to shipments of some 6 million units this year. Despite staking such claims, major Taiwanese players only started to roll out their respective tablet models in the second quarter this year, giving the iPad a 12-month head start.

Taiwan’s first manufacturer to create a buzz in the tablet market was not one of the island’s big-shot IT firms; instead, it was lesser-known First International Computer Inc. (FIC). The company has produced PCs, servers and motherboards on an original design manufacturing (ODM) basis for 31 years while selling a smaller volume of computers carrying its own brand in Japan, the United States and mainland China.

“FIC has been laying low for quite a while … our performance wasn’t very impressive in the past few years,” admits FIC chief operating officer Leo Chien. “But we see 2011 as the year for us to make a splash in the industry with a foray into tablets.” FIC embarked on research and development for tablets in April 2010—the same month the iPad was introduced—and churned out its first model, dubbed the “Tycoon,” by November that year.

A Solid Start

The company is focusing on a niche market with the Tycoon, targeting business executives who demand productivity while on the go. The 10.1-inch (25.7-centimeter) model runs on Microsoft Corp.’s Windows 7 OS, weighs 840 grams and sports a 120 gigabyte hard drive as well as a low-voltage Intel Atom N455 processor. It sells for around NT$17,000 (US$585). Chien predicts FIC’s total tablet shipments, including both own brand and ODM, will hit 50,000 units per month this year—not a huge number of units shipped, but a solid start nonetheless.

Another local motherboard maker, Gigabyte Technology Co., is hoping to differentiate its lineup by offering a dual-OS tablet. The device, due out in October this year, will be able to run both Windows 7 and Android, letting users choose which one to use when they start up the machine. That would allow users to quickly boot the Android OS for casual Internet use, or turn to the Windows 7 OS when they needed to run Microsoft’s Office software. Although Android allows tablet users to read Office documents, applications that run on Google’s OS seldom allow editing of those files, making standalone Android systems less appealing to business users. Gigabyte’s tablet is expected to use an Intel Atom processor but not include USB ports for connecting other devices and should carry a price tag of less than US$400 per unit.

Although Apple’s iOS and Android are the imposing players in the tablet market, Microsoft is reportedly working on a new version of Windows that will run on low-powered processors. Gigabyte says it has plans to begin developing a tablet using the upcoming OS, Windows 8, by the end of this year. That tablet will be on the market in the final quarter of 2012, possibly using an ARM processor developed by ARM Holdings plc. of the United Kingdom, the company says. ARM processors are already found in billions of mobile phones around the world and could become a major force in tablets with a tailored OS such as the rumored Windows 8.

Taiwan’s HTC, the world’s No. 5 smartphone brand, is also targeting business users. Announced at the Mobile World Congress, the 7-inch (17.8-centimeter) HTC Flyer hopes to set itself apart from a horde of iPad lookalikes by including a stylus the company calls the “Scribe.” The Scribe is not used to navigate the screen like a mouse; rather it enables users to take notes, draw colorful pictures and add annotations to web pages. A built-in software application also allows users to record audio at the same time as they write with the Scribe, a feature that serves the needs of students, artists and business professionals such as lawyers and doctors, HTC says.

What Taiwanese IT manufacturers share in common is the desire to put their own stamp on tablet computing. They seek to introduce products with distinctive features and, most importantly, offer a slew of applications and content that could prove addictive to consumers. Sleekly designed, functional and reliable hardware is important in the tablet space, but applications, or apps as they are known in the mobile IT world, are what make using a tablet so rewarding.

Up to Snuff

Vibo Telecom Inc. president Chang Feng-hsiung is convinced that tablets have the potential to replace notebook PCs, albeit with the major caveat that tablet apps must be up to snuff. “How fast tablets replace laptops depends on how many apps you are ready to offer,” he says. “Without a pool of good apps, users would prefer to browse the Internet on their laptops rather than tablets.”

A report from US-based IT market researcher IHS iSuppli underscores the growing importance consumers are placing on mobile apps, noting that worldwide revenue for the market segment totaled US$2.2 billion in 2010, up 160.2 percent from US$828 million in 2009. iSuppli estimates that global revenue for apps for all mobile OS platforms will expand a further 81.5 percent to US$3.9 billion this year.

Of 2010’s total mobile app revenue, the biggest bucks went to Apple, with the company’s App Store generating US$1.8 billion, a rise of 131.9 percent from 2009, according to the report. In a sign that competitors are eating into Apple’s dominance, however, the company’s share of all app sales slid to 82.7 percent from 92.8 percent. “As competitors refine their stores, they will continue to eat into Apple’s dominant share,” iSuppli says. “However, Apple is expected to retain more than half of all app market revenue at least through 2014.”

Among the competitors, Research In Motion’s store, Black­Berry App World, retained its No. 2 ranking behind Apple with a 360.3 percent growth in revenue in 2010, good for a total market share increase to 7.7 percent from 4.3 percent. Nokia’s OVI Store, meanwhile, saw revenue soar by 719.4 percent, boosting its market share from 1.5 percent to 4.9 percent, putting it in third place.

One of the fastest-rising stars in the mobile app space is Google’s Android Market, an online marketplace for apps. Android Market skyrocketed 861.5 percent to seize a 4.7 percent total market share in 2010, up from 1.3 percent over 2009. For mobile device makers, the beauty of using the Android OS is that it frees them from the necessity of developing their own app stores. “We are not competing with Apple in the app-store space,” says an Asustek source who asked to remain anonymous because she was not authorized to talk to the media. “Instead, all other mobile phone makers and PC makers are banking on the Android Market, which is gaining momentum by the day.”

Although productivity apps are important to business users, tablets really shine with apps that deliver content such as news, video, music and games. That was why HTC rolled out a tablet app called HTC Watch in May this year. Watch puts a library of more than 500 recent Hollywood movies and TV shows at the user’s fingertips. The app also uses a progressive download technology that makes it possible to begin watching videos without having to wait for the entire video file to finish downloading. Watch offers users the choice of renting or buying videos, with purchased videos available for viewing on up to five HTC devices.

All these apps are fabulous ideas—provided that the hardware is equally impressive. HTC, for one, is on high alert to make sure it gets everything from hardware to software right, as the company knows a weak link at any point in the chain could cause it to lose out to bigger rivals. According to HTC CEO Peter Chou, the company’s mobile offerings must be “bone deep” instead of “skin deep.” To give HTC’s products bone-deep content, Chou has guided the company through a recent array of aggressive investments in the mobile app space. In February this year, HTC paid 30 million British pounds (US$48.7 million) to acquire Saffron Media Group Ltd., a British firm that develops software for delivering content over the Internet. The same week, HTC announced it would invest US$40 million in US-based games-on-demand provider OnLive Inc.

“OnLive’s cloud gaming, Saffron’s movie streaming and the pen application will help differentiate HTC’s Flyer” says Jeff Pu, an analyst with Fubon Financial Holding Co. HTC’s investments in Saffron Media and OnLive could also help the company enrich its user interface in the video and games-on-demand spaces to differentiate its products, he adds.

HTC was just getting warmed up with Saffron and OnLive, however, as in March the company announced it would fork out another US$10 million to acquire an 11.1 percent stake in fast-growing online music service provider KKBOX Inc. The investment is expected to boost HTC’s presence in the regional online music space as KKBOX—currently Taiwan’s largest music provider—has plans to move into the Japanese and other Asian markets in the near future. “Music is one of the fastest-growing segments in digital content and it’s a key aspect of HTC’s content and services strategy,” Chou says.

While HTC has publicly announced its ambitions, Asustek is taking a more low-key approach to boosting its content. According to the company source who requested anonymity for this article, the PC maker is gearing up to give its online content store a boost in the near future by introducing a horde of Flash-based online games and a movie rental service. Flash is a web-browser-based platform that delivers rich applications, content and video. Asustek had held talks with Netflix Inc.—a US-based company that provides video rentals online as well as by mail—the source says, and aimed to roll out Netflix offerings in the Taiwanese company’s “@vibe” content store around the second quarter of this year.

Netflix’s subscribers surpassed a combined 23 million in the United States and Canada at the end of the first quarter this year. While the company already offers a service that lets users of Apple’s iPads and iPhones watch rented videos, the project with Asustek will mark the first time Netflix has supported devices running on the Android OS such as Asustek’s Eee Pad Transformer, the company source says. Asustek is expected to adopt a business model in which it charges users a flat monthly rate to watch recent Hollywood flicks from Netflix.

Launched in 2009, @vibe was originally an added-value feature Asustek offered for users of its Eee PC netbooks. Asustek has updated the content store continually and is now modifying the service for tablet users. The @vibe store currently offers a plethora of content ranging from music and radio to books, magazines and newspapers.

All About Content

The company is joining hands with various providers around the world to churn out localized content for users in different countries, the Asustek official says. In Taiwan, for example, @vibe has teamed up with UDN Group, the owner of the United Daily News, and MagV, a digital magazine provider, to offer downloads of electronic newspapers and magazines. In the United States, Asustek has partnered with Zinio LLC, a large publishing house that provides sales and distribution of printed material in digital format including magazines, books, catalogs and newsletters.

Apple’s iPad casts a broad shadow over the tablet market because of its lengthy head start, well-stocked app store and wealth of content. Taiwanese IT makers have long excelled in PC hardware and are now furiously pursuing the tablet market. Tablets are different from PCs, however, because along with cutting-edge hardware, the tablet experience is also heavily dependent on apps and content. Local manufacturers are moving quickly to address these needs, but only time will tell which companies will be successful in grabbing market share in the tablet space.

It is also likely that a shakeout is coming in the tablet sector, according to Fared Adib, vice president of product development for Sprint, the third-largest US wireless service provider. “You’ll probably have a good dozen [tablet] players by the end of this year, and then in two years you’ll probably see just five that are really playing in the space,” he said during an interview in February at the Mobile World Congress in Barcelona.

Taiwanese, however, are known for their resilience in the face of daunting odds, and local companies have capitalized on that spirit in the IT field. HTC, for example, has shown no hesitation in taking on Apple in the smartphone market, product for product, lawsuit for lawsuit. Local companies are also not about to turn away from a potentially lucrative new market niche. If Adib’s prediction is accurate, therefore, five years from now it should come as no surprise to find that one or more of the five remaining tablet makers hails from Taiwan.

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Jason Tan is a freelance writer based in Taipei.

Copyright © 2011 by Jason Tan