On the eve of the annual Consumer Electronics Show in Las Vegas, tabletmania is hitting a fever pitch. We may see dozens of tablets launchedthis week alone, many from the biggest brands in computing such as Lenovo, HTC and Asus. The presumed Apple ( AAPL) version in particular allegedly is going to become the new iPhone, changing our lives forever like a Messiah. The lines will go around the blocks. It feels like real estate pre-construction mania all over again.

(See all our CES 2010 coverage.)

Before we swallow the new tablet religion lock, stock and barrel,however, let's ask some basic questions:
  • What will it do that the current smartphones and laptops don't do?
  • Where will it be used?
  • Who will afford it?

Apple's Precious Tablet

What will it do that's new? Most people who are the intendedpurchasers of a new tablet are allegedly already owners of an iPhone, Research In Motion's ( RIMM) BlackBerry or whatever, plus a laptop. We can read the news on smartphones and laptops alike -- either by going to the Web sites or by using an RSS reader such as Viigo. If we want to read a book, Amazon ( AMZN), Barnes & Noble ( BKS) and Sony ( SNE) already have the electronic bookreaders. It's far from clear what the functionality will be requiring a tablet.

Where will you use this tablet? At home, the laptop is easilyportable and fully functional, traversing work as well as play. Thescreen is bigger, a keyboard is handy, and software compatibility isuniversal. When you walk out the door, the tablet is too big for thepocket, and will you really want to add it as an extra weight in yourlaptop briefcase?

Who will afford it? Most people are replacing their smartphones everytwo years, and laptops every three years. The smartphone may be $200upfront plus $100 to $150 a month. The laptop may be $1,500 upfront(including a three-year warranty and Microsoft Office) and as much as $60a month for a cellular data connection. Families in turn have multiple existing replacement cycles, not only for the adults, but increasingly also for the children -- unlike only a decade or two ago. Will these families want to enter the treadmill of athird replacement cycle -- $500 or more for the device, plus perhaps a monthly subscription fee? Or will they want to focus on being able to afford upgrading their smartphones and laptops instead?

I have no doubt that tablets will sell at least a few million units.However, it will not be the next iPhone or Blackberry. It doesn't fitin a pocket. It's not going to be more capable than the laptop youalready have. It requires another $500-plus outlay. And if it's a bookreader, it had better offer better books than Amazon's Kindle does.

This is a tall challenge. It may be more appropriate to mute the tabletsales expectations.

That said, if you're Apple, the stores are already paid for and thereis plenty of wall space on which you are encouraged to throw somespaghetti, or a tablet. Go for it; niches all add up.

Anton Wahlman was a sell-side equity research analyst covering the communications technology industries from 1996 to 2008: UBS 1996-2002, Needham & Company 2002-2006, and ThinkEquity 2006-2008.

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