Will buyers write off new tablet PCs?

Microsoft is aiming its new operating system for pen-based, "tablet" computing at the mainstream corporate market, but the first buyers are likely to be businesses with specific requirements.

Although the pen-based computing concept and Microsoft's latest attempt at it get good marks, information technology managers, analysts and others in the industry say machines running the software giant's Windows XP Tablet PC Edition OS need to improve in function and come down in cost before tablet devices achieve broad-based popularity.

The latest crop of gadgets is set to debut at a high-profile launch in New York on Thursday. Weighing 3 to 4 pounds and costing north of $2,000, the PCs use a specialized version of Microsoft's Windows XP operating system that's optimized for pen input.

Merrill Lynch Chief Technology Officer John McKinley said the current crop of tablets running Microsoft's software is by far the best pen-based computing effort to date. However, he doesn't see sales taking off right away. Among the reasons is that, as good as Microsoft's handwriting recognition is, it still has just as much trouble deciphering bad script as any other handwriting recognition program.

"There are no miracles," McKinley said in an interview. "I got a C in handwriting in grade school. Having used the tablet, I understand why I got a C."

Microsoft officials declined to comment for this story. In the past, the company has said it hopes to eventually convince a significant portion of corporate laptop buyers to choose a tablet PC.

"If you can get (a notebook) for about $1,800 with long battery life and high screen resolution, and for less than a 10 percent increment have your tablet (PC), I think a significant part of that market will find that a compelling value proposition," Microsoft group vice president Jeff Raikes said in a September interview.

For the most part, the devices running the new Microsoft OS fall into two categories.

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Some of them, including models from Toshiba and Acer, are laptops with screens that can be twisted around backward and then folded down to create a tablet. Others are pure tablets, resembling an Etch-a-Sketch. Hewlett-Packard takes the middle ground between handheld and notebook, with a model that can operate as a laptop, but only with a plug-in keyboard.

Larry Singer, the chief information officer for the state of Georgia, said he likes the idea of a tablet computer for entering data, but says such devices don't really replace laptops.

"We don't see this as a replacement for a notebook," Singer said. "I really think it's replacing paper. It's (playing to) a different audience that doesn't have PCs now; people who do forms work in the field."

As Singer sees it, the devices could be used by people such as child-welfare case workers, who rely heavily on paper files. Case workers could take a tablet PC along on a home visit, for example. Rather than filling out a stack of paper forms, workers could enter and maintain case files electronically, speeding the process and potentially saving money.

Although the devices could have other solid uses, such as in schools, Singer said the current crop doesn't pass the durability test.

Microsoft has been working on its latest conception of a pen-based PC for more than two years, in a bid to create a class of more functional portable computers that people can operate using a pen. Many of the details, such as the features in the Tablet PC operating system, have been revealed ahead of the official launch.

On Thursday, the company's efforts will be made tangible as manufacturers including Toshiba, HP, Acer, Fujitsu, ViewSonic and tablet-focused start-up Motion Computing demonstrate their products.

Although Microsoft is aiming to grab a chunk of the mainstream corporate market for ultraportables, McKinley said that for the next year or two, tablets are likely to remain a niche product.

"Its near-term role will be...relegated more to vertical applications," McKinley said.

Although Microsoft has lined up an array of partners, other PC makers--notably Dell--are sitting on the sidelines. Dell's absence is significant in that the Austin, Texas-based PC maker is known for waiting until a product is really ready for mainstream buyers before it will enter a market.

"We'll probably wait until we see an opportunity for this to become mainstream or where we can add value and jump in,"

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said Tony Bonadero, director of product marketing for Dell's Latitude notebook line. "It's a question of when as opposed to if. We'll continue to look at it over the next six to 12 months and make a decision then."

Dell would be most likely to jump in with a device that, like those from Acer and Toshiba, could also be used as a traditional notebook. In the interim, Dell plans to resell ViewSonic's V1100 tablet and possibly others, via its Software and Peripherals group, Bonadero said.

Merrill Lynch's McKinley, who has tried a number of products using Microsoft's Tablet PC OS, said that the ones that also work as traditional notebooks are likely to be more popular than those that work only as a tablet. However, McKinley said he did not expect any of the initial products to be an overnight success.

"Do I think it represents great engineering?" McKinley said. "Yes. Do I think it's enough to represent the same kind of paradigm shift the BlackBerry represented? No."

McKinley said the tablets are likely to face competition not only from PCs, but also from smaller mobile devices with built-in wireless abilities such as Research In Motion's BlackBerry, Handspring's Treo and Danger's Hiptop.

"These micro-keyboard (devices) represent...a near-term competing paradigm for pen-based implementations," McKinley said.

Microsoft is also limited by the fact that the initial version of its software recognizes handwriting in only a half-dozen languages: English, French, German, Korean, Japanese, and both simplified and complex Chinese. Microsoft is also working on making the software more adaptable to an individual's writing style.

On the other hand, tablets will probably be helped by the relentless pace of cost cutting and technology enhancements seen in the PC industry.

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Currently, it costs manufacturers around $100 or more to add the extra chips and other components to transform a notebook into a tablet, according to various estimates. However, the cost difference is expected to decline and could eventually make the pen a standard option on some classes of notebooks.

At the same time, the operating system will likely be added to notebooks using the larger 14- and 15-inch screens that are more popular today, said IDC analyst Alan Promisel.

News.com's Michael Kanellos contributed to this report.