Three in 10 PC shipped in Q2 were tablets. According to Canalys, more than 34 million tablets were shipped in Q2, a 43 percent year-on-year increase. Even more impressive is the fact that tablets now account for 31 percent of worldwide PC shipments.
The charge is led by Android-based tablets as Apple’s tablet shipments declined 14 percent in Q2 and saw its market share shaved to 43 percent. The chasing pack of Samsung, Amazon, Lenovo, and Acer each grew annually by over 200 percent, driven by increasing demand for small-screen tablets.
Canalys estimates that 68 percent of tablets shipped in Q2 had a screen size smaller than nine inches. “Consumers have been evaluating tablets and the results are now in,” said Tim Coulling, Senior Analyst at Canalys . “With touchscreens contributing to a high proportion of the build cost of a tablet, small-screen products can be priced very aggressively.”
Apple’s decline in shipments and share has been partly attributed to its aging portfolio. But Canalys believes that new product launches will have less impact on its shipments in future.
“When Apple does decide to refresh its iPad range, it will not experience the buzz of previous launches,’ said James Wang, Analyst at Canalys. “Tablets are now mainstream products and hardware innovation is increasingly difficult. With branded Android tablets available for less than US$150, the PC market has never been so good for consumers, who are voting with their wallets.”
The move to smaller tablets has sparked a price war that has real consequences for the entire supply chain. These products generate little absolute margin for channel partners, vendors or component manufacturers. Content, applications and accessories (especially cases and keyboards) are now even more important to boost margins – areas where Apple remains a leader.
In addition to disappearing margins, inventory management is emerging as a major challenge. If a vendor overcommits at the product planning stage, unsold inventory can play havoc with a company’s balance sheet, even with other hit products in a portfolio.
The market for full-sized tablets has stalled and even Apple has found it harder to sell its larger iPads in recent quarters. “Microsoft’s inventory issues with the Surface have been well publicised,” said Coulling. “Heavily discounted Surface RTs will fly off the shelves. Expect prices to continue to fall though, as the starting price of US$350 is still too expensive to spark an HP TouchPad-style buying frenzy.”
Despite its 53 percent share, Android still lags far behind iOS in the availability of fully-optimised tablet apps, and tablet app downloads from the Apple App Store dwarf those from Google Play. But Android is expected to continue to close the ecosystem lead iOS has in tablets and increase share in coming quarters.
“Developers can and will quickly switch their priorities as different opportunities evolve and improve,’ said Tim Shepherd, Senior Analyst at Canalys. “We expect to see a substantial increase in the quantity, as well as the quality, of apps built or optimized for Android tablets over the next 12 months, as Google brings more attention to them through improvements to the Play store, and as the addressable base of devices continues to soar.”
While it is true that Apple is losing its stranglehold on the tablet market in terms of volume, it will remain its most profitable vendor for years to come. Apple has already faced a similar battle in the smart phone market, and it now looks increasingly likely that it is readying a product that can address lower price tiers and high-growth markets in that space.
If this is indeed the case, Apple could replicate a similar portfolio play in the tablet market. It will be in no rush – after all, the launch of the iPad mini was designed to address this segment. But its hand could be forced if competitors’ prices continue to plummet.
The margin models in the smart phone and tablet markets are very different. It will still make good margin on a cheaper iPhone but will struggle to do so with a cheaper tablet, and would instead need to rely increasingly on accessory sales and, likely, subsidy from apps and content purchases.