CES 2011: Tablets, Smart TVs, and 4G – Ready for Prime Time

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Paul Sagawa

203.901.1633

sagawa@sector-sovereign.com

January 10, 2011

CES 2011: Tablets, Smart TVs, and 4G – Ready for Prime Time

  • Taken as a whole, CES firmly supported our key market hypotheses. Tablets and smartphones are the devices of the future, likely to crowd out PCs as consumers lead the market charge to portable platforms and cloud based applications. Living room TVs are rapidly being connected to the Internet and will fuel the migration of viewership to on-line video and eventually, to cord cutting. Wireless 4G is a big deal – it will drive another cycle of ARPU growth for carriers, stoke the fires of tablet adoption, and evolve to challenge wireline broadband’s residential hegemony. All of this supports a vision of personal devices controlling the home, with all applications and content available on all screens, un-tethered by either wires or industry monopoly
  • Winners: Verizon – moving decisively faster than its competition with its 4G network and its device line up. Motorola – showing 2010 was no fluke and that it is ready to compete with the iPhone at Verizon. Samsung – exhibiting technical leadership in almost all aspects of its consumer electronics product line. NVIDIA – The coming out party for the Tegra 2 establishes the company as a leader in portable device processors. Qualcomm – 4G keeps the wireless world on Qualcomm’s track. Google –Android is everywhere. Apple – Despite not participating, its influence was still overwhelming
  • Losers: Microsoft – No buzz, few new products, little support from partners. Intel – Flatfooted as the world goes ARM. Nokia – Not present, no one noticed. RIM – Playbook doesn’t look differentiated enough. AT&T – Way behind on LTE, new phone line up not enough to offset loss of iPhone exclusive. Cable operators – More denial on cord cutting. Cisco –benefits from increased bandwidth, but nothing new for consumers but a software tool to help cable operators thwart cable cutting
  • The exhibitors at the 2011 CES were remarkably aligned in their take on the future of consumer tech, media and telecom. The reporters and blogosphere focused on the barrage of tablets, most featuring Google’s Android software, a few with Microsoft’s Windows 7, and RIM’s iconoclastic Playbook. However, there were other trends that were easily as evident. Smart TVs from every manufacturer led a parade of WiFi connected products, from Blu-Ray players to refrigerators. 4G, and in particular, Verizon’s aggressive roll out of LTE was also a consistent theme echoed in a slew of device announcements, but also in FCC Chairman Genachowski’s rallying cry for wireless broadband. Finally, 3D TV dominated the floor space for the biggest home electronics brands, after a year with little market evidence of public enthusiasm for the category
  • The traditional absence of Apple allowed Google’s Android to hog the tablet spotlight, and the #1 iPad challenger took ample advantage. Of the dozens of new products, Motorola’s spec-rich Xoom, the first to deliver Google’s tablet optimized 3.0 Honeycomb Android release, had the biggest buzz and will get a huge push from Verizon as its flagship LTE product. Android products from a broad array of computer and smartphone makers from three continents, in multiple form factors, with the enthusiastic support of developers, content owners and network providers, evince the power of the Google ecosystem
  • In contrast, Microsoft’s Windows 7 showed on a relative handful of devices and generated little enthusiasm. The announcement of intent to support Windows on the ARM processor architecture is likely too little, too late to establish Microsoft as a real alternative to Android in challenging Apple for leadership in tablets. Ominously, traditional PCs were hard to find on the floor. The Blackberry Playbook, running RIMs proprietary QNX OS, has garnered attention for its snappy performance and slick user interface, but faces an uphill battle for attention from software developers and carriers. The biggest differentiating point appears to be support for RIM’s push-email service, a feature that has diminishing value as more and more IT managers open their mail systems to Android and OS X devices
  • Inherent in the tablets and smartphones drawing oohs and ahhs at the show was a new generation of processors based on the ARM core. NVIDIA’s Tegra2 dual-core processor was at the heart of the XOOM, Playbook, and other well regarded device introductions, while Qualcomm’s 1.2 GHz Snapdragon powered many other top vendors’ products. In contrast, Intel’s Atom, TI’s OMAP4 and Samsung’s Orion appear to have made relatively little headway in this generation of devices
  • Smart TVs were in abundance, designed to give viewers the ability to choose from programming from traditional television sources or directly from the Internet. Google TV, launched in 2H10 and promptly blocked by TV network sites looking for compensation, nonetheless remains in evidence, although TV makers are now pushing their own proprietary interfaces. Also on the floor were solutions for bringing video from the web to the TV via the home PC, bypassing media companies who hope to extract extra payment for allowing on-line content on the living room TV. We note that TV makers, including those using Google’s platform, could make their browsers indistinguishable from PC browsers, and thus, keep the networks from discriminating against them
  • Cable and satellite operators were also vocal, presenting partnerships with TV makers like Samsung and set-top box makers like Cisco to stream channelized content to subscribers. These initiatives are intended to satisfy consumer thirst for on-line content while controlling the primary user interface and erecting barriers to cord cutting. These efforts, while a potentially effective speed bump, rely on difficult propositions for the long run. First, it would seem unlikely that system operators would be able to design proprietary user interfaces able to satisfy consumers with experience with Apple and Google software. Second, the history of “walled garden” approaches that curate Internet content rather than providing open choice is a record of failure. Third, it will be difficult to maintain the co-operation amongst content owners, networks and other carriers needed to maintain the value of bundled content and squelch on-line competition. Finally, the relentless upward march of cable prices gives consumers increasing incentive to explore other options
  • It is not just TVs that will be connected. Exhibitors of every ilk at CES were showing WiFi enabled devices. Appliances connected for home management, remote control and power management. Home AV electronics connected for access to streaming media and coordination across multiple devices in the home. Applications to allow smartphones and tablets to manage and control the entire home
  • On Friday, FCC Chairman Julius Genachowski addressed the conference, pressing his case for the importance of wireless broadband and outlining the commission’s plan to open new spectrum. Pending Congressional approval, expected in 1Q11, the FCC will implement incentive auctions intended to induce the local television broadcasters currently using swaths of the most useful and valuable spectrum to voluntarily offer it for reassignment. These television stations would receive a percentage of the proceeds of these auctions in exchange for promptly vacating the spectrum and moving to share channels occupied by other broadcasters. By this method, the FCC believes that 120 MHz of bandwidth in the 700 MHz band could be made available for broadband. Chairman Genachowski was explicit in his belief that wireless would eventually be able to challenge wired broadband providers for residential service, thus driving both price competition and innovation
  • Beyond the Chairman’s presentation, 4G had a prominent place in CES 2011. Verizon, with its aggressive LTE roll out was the star of the show. AT&T, which took the trouble to follow T-Mobile in re-labeling its 3G HSPA+ upgrade as 4G, set its own LTE debut for 2012, more than a year behind Verizon. Various network testers were reporting speeds of up to 20 Mbps over LTE, although Verizon expects download throughput to be more in the range of 10-12 Mbps once the network is loaded with users. This is a 10 fold increase over 3G, and a near doubling of the wireline speed experienced by the average US broadband user. This measure of speed un-tethers smartphones and tablets from WiFi for bandwidth intensive applications like media streaming and video conferencing
  • It is also worthwhile to note that Verizon’s LTE device line up was extremely impressive, including the aforementioned XOOM, but also impressive smartphones from Motorola, HTC and Samsung. Including the expected iPhone 4 announcement tomorrow – N.B. not expected to support LTE – and Verizon has a line up far beyond its carrier competition
  • Finally, 3D TV was once again featured by all of the major manufacturers, creating scrums for glasses at each station. While the effects are eye-popping and the success of the technology in theaters is established, 3D in the home remains a significant uncertainty. The nuisance of the glasses, the scarcity of content, and mounting evidence of eye strain that could be a risk to children could push 3D to the periphery in future shows. One point of promise – a few of the biggest vendors were showing 3D that did not require glasses, a breakthrough that would satisfy the biggest current objection to the technology
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