In Goldman Sachs’ recent market release “The disruptive nature of tablet computing: A comprehensive analysis of the winners and losers in global TMT and Retail” (April 18, 2011), they very rightly point out the lack of differentiation amongst non-iPad tablets.    Specifically, they claim “We see very little differentiation between the hardware specifications of non-Apple tablets announced to date…similarities include Operation System, Application Processors, (Display) Resolution, Camera Features, and Memory.”

This underscores a lot of what we hear from tablet (and by extension, smartphone) OEMs. Taking Goldman’s specific points one-by-one:

• Operating System: Apple sure doesn’t look to be releasing iOS outside of the iPad/iPhone anytime soon (history would say that this will never happen).  That leaves OEMs with a choice of Android or Windows Mobile.  Further complicating this is that most OEMs have multiple platforms, and supporting multiple OS’s requires multiple design teams with similar skills, allowing only the largest of OEMs to support multiple options. As WM7 is a smartphone-geared OS, and hasn’t yet gained any measure of true widespread acceptance like Android or iOS (however, time with tell with their Nokia deal whether this remains true), Android becomes the only real choice for the majority of OEMs.

So how can an OEM differentiate? OEMs can certainly build layers of custom software onto Android (see Motorola, Samsung, others).  This takes time and resources, often neither of which fall within target program schedules.   OEMs can also differentiate by offering the latest version of Android before their competitors, but this advantage equates to only a very small window of time, with that window becoming tighter with each subsequent Android release.

• Applications Processors (AP): By taking the best parts of the Samsung/Apple A4, adding a ton of horsepower, and a little (ne: lot of!) secret sauce, Apple created the A5 processor, which represents true differentiation in the market. Apple was able to accomplish this internally through their top-notch ASIC team, coupled with a great partner in the A4, Samsung.   However…could another OEM do this?  My contention is without specific internal ASIC and processor design teams — no way.  Without the ability to design a custom AP, OEMs must choose from of a limited list of suppliers, including Qualcomm, nVIDIA, Samsung, TI, Intel, and Broadcom.   As the Sachs study correctly points out…most of these processors appear (on the surface) to provide very similar capabilities–1 GHZ dual core processors, etc…  Further, it appears that these processor makers aren’t engaged in custom design for any particular OEM, at least publicly.  Now, certainly processor makers have preferred OEMs, but at the end of the day, they will engage with any OEM that makes business sense.

So how can an OEM differentiate? Unless the OEM is willing to pay a very considerable NRE for a custom design at a processor maker (and even assuming the AP would entertain this), the only solution to this is to hire a very expensive, extremely-skilled design team, and wait the 2-3 years it takes for a processor to be designed. That 2-3 years, in the consumer market, can make the difference between >50% share and <30% share. Or worse.  Is this feasible?  Not in today’s consumer products environment, and not with a lot of OEM balance sheets.

• Display Resolution: Most tablets reside at 1024 x 600.  Display resolution is one example where no one OEM has a distinct advantage over another.  Certainly at the onset of iPad sales, Apple ruled this category simply because they were the only one in the market.  However, my Galaxy Tab and Motorola Xoom provide displays with similar resolutions with similar viewing experiences.  And while an HD “Retina” display was rumored right up until the release of the iPad 2, the same panel was used at the end, much to Apple fanboy dismay.  While having absolutely no personal knowledge of Apple’s product plans, my outside opinion is that I would be very surprised to not see some increase in resolution on the next iPad—perhaps not to the scale of a 4X Retina display, but definitely an increase.

So how can an OEM differentiate? Higher resolution screens, or better viewing experiences (VEE!).   Most any OEM can source a higher resolution display—it’s a matter of working with a display maker to design a custom display, as displays are much easier to customize than AP’s in terms of time, cost, and complexity.  However, with larger resolution displays come greater costs and power consumption (DPO!). Also, the increase in display size or resolution brings the inherent consumer expectation of a better viewing experience (VEE!) on those devices. So how does an OEM handle that?

• Camera Features: Tablets right now are drafting off the smartphone camera modules, and will likely for some time.

So how can an OEM differentiate? As I spent the 10 years before QuickLogic in the camera/camera phone industry, I’ve been screaming this for some time:  HDR cameras…larger pixels in lower-resolution cameras for optimum image quality to size…true camera phones, not just simply a phone that has a camera stuck on the top. All this being said though, these options all add cost (and size) to the BOM.

• Memory: Perhaps the most standard of all options for OEMs.   You want a flash based system? Choose a 1, 2, 4, 8, 16, 32, 64 GB option.

So how can an OEM differentiate? Since memory is such a commoditized product (mind you, commoditized at the insistence of the OEM), there is very little, if anything, OEM’s can do to differentiate themselves. An OEM could ride the bleeding edge of product development, but this leads to potential delivery and performance issues, high initial costs, and a level of reliance on a supplier simply not palatable to OEMs.

So, how in the world can an OEM provide some sort of tangible differentiation that will allow their products to stand out from the pack?

For all the ways to differentiate listed above, there is one option NOT mentioned in the Goldman Sachs report: hardware differentiation (HD).

Most tablet OEMs offer products in many form factors (desktops, smartphones, GPS, portable music players, notebooks, smartbooks, netbooks, etc…); while software requirements for these form factors are highly varied, the one constant is hardware.  By default, this makes these OEMs, at their core, hardware experts.  HD is then perhaps the easiest, most ‘low-hanging fruit’ for product differentiation.

As hardware is well, hardware, it is most often not subject to the performance capabilities of their OS, or what software add-on’s their OS and Application Processor providers will support (that happens a lot more than most OS and AP providers would admit).   As hardware experts, OEMs can quickly integrate the hardware differentiating chips and technologies of their choice, without the cost and risk associated with alternatives.

Finally, it’s a lot harder to copy hardware than it is software…if a very cool piece of software comes along in a tablet from OEM A, it often is available on OEM B, C, and D’s system faster than you can say ‘Angry Birds.’  Hardware, on the other hand, is something that is integrated at the onset of a design, which gives early adopters a much larger head start than with software.  Adding a unique piece of hardware into an OEM system can often give than OEM a lead on their competitors of 6-12 months.

So “differentiate away” OEMs, and remember that QuickLogic is always happy to provide you CSSP chips that will truly make your product stand out in a sea of me-too products.