Here comes the tablet glut.
At the start of 2011, tablet PCs seemed to have a bright future. Apple (NASDAQ:AAPL) had sold 8 million iPads during the last nine months of the previous year, and Google (NASDAQ:GOOG) Android-powered tablets like Samsung’s Galaxy Tab sold a million in the last two months. The conventional wisdom was that a slew of new Android tablets from Motorola (NYSE:MMI), Dell (NASDAQ:DELL), Hewlett-Packard (NASDAQ:HPQ) and others would emerge, pulling Apple’s share of the market down closer to two-thirds.
But now it’s starting to look as if the supply of tablets will soon outpace the demand for them. Concerns began mounting last week, when
JP Morgan analyst Rod Hall said in a research note that he calculated tablet manufacturers will churn out 81 million of the devices this year against the expected sales of 47.9 million.
That means some tablet dreams won’t be realized. And early indications are that those left behind in the tablet gold rush won’t include
Apple. With the iPad, Apple has locked up the tablet market for itself for a year. Whether it continues to dominate the market this year depends largely on how high the iPad 2 sets the bar for rivals to jump over. Early reviews suggest the bar remains high – the iPad is still
widely seen as the best of the pack.
Meanwhile, the notion that Android would eat away Apple’s market share in tablets as it has in smartphones hasn’t yet proven true. The first big Android tablet of 2011 was supposed to be Motorola’s Xoom, which uses a dual-core processor as well as a new version of Android called Honeycomb, which was optimized for tablet screens and dual-core processors.
But if the Xoom is the canary in the Honeycomb coal mine, the outlook isn’t good. In early March, research firm Detwiler Fenton looked at the tablet’s sales in the first week and found them discouragingly light, citing its high price ($729 vs. the iPad’s range of $499-$729) and the lack of apps in relation to those on the iPad. In other words, consumers don’t want to pay more for less.
Then Global Equity Research issued a note last week declaring Xoom sales “very weak” and citing small but noticeable software problems
with Honeycomb on the device. On Friday, Morgan Keegan said sales weren’t so bad: Two devices a day were selling on average at Verizon (NYSE:VZ) stores, enough to meet estimates of 3,000 Xooms sold this quarter.
Technically, not a disappointment, but judging from the lines at Apple stores, the iPad2 will be selling well more than two a day.
Apple, of course, is expected to release an iPad 3 this fall, and the early word is that the improvements it promises will be substantially bigger than those in the iPad2. Apple’s working to raise the bar even higher, and Google is tweaking out the kludges in Honeycomb.
That suggests that manufacturers of Android tablets, as well as those running Microsoft Windows Phone 7 and H-P’s WebOS, will face pressure to compete on price. But life will be tough at the low end of the market. Chinese tablets like the APad are selling for less than $150.
And cheaper tablets are, in turn, only going to put price pressure on netbooks. Gartner lowered its estimates for PC shipment growth this
year to 10.5% from its previous projection of 15.9%.
So far, the damage is being seen most in consumer PCs and netbooks. According to IHS iSuppli, Acer’s PC shipments in the fourth quarter
fell 12.9% from the previous quarter. Acer is more dependent on the consumer market than H-P or Toshiba, which saw their growth rates grow 13.6% and 16.5%, respectively.
So Tablet-mania may not be the rising tide that lifts the boats of all manufacturers. There are emerging quickly winners and losers. And
unsurprisingly, the biggest winner remains Apple.