Apple’s iPad Lead Shrinks

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Is Apple (NASDAQ: AAPL) in trouble?

Torrential Growth

Few firms post product growth of more than 300%.  Even fewer companies achieve the feat in multiple categories.  But Apple’s iPad, a mix between a smartphone and a laptop – did just that.  According to Apple’s most recent 10-K filing, Apple upped iPad revenue 311% from 2010 to 2011 and bolstered iPad sales 334% from 2010 to 2011. 

In 2012, those growth numbers fell to 59% for revenue and 80% for iPad sales.  The numbers are still impressive, but they convey a trend in the fast-moving tablet market: cut-throat competition is here to stay.

Competitor Products

Last quarter Apple’s share of the tablet market slipped from 65.4% to 50.4%, a blow to the company. 

Samsung's market share spiked, hitting 18.4% - almost double its second-quarter share of 9.4%.  Samsung’s market share is relevant because it is the highest market share ever achieved by a company that is not Apple.  Of course Apple has the advantage because it essentially created the industry.

Nevertheless, some say that Samsung’s tablets are comparable to Apple’s (I somewhat disagree), but at far less the price.  Also, Samsung’s tablets run on Google’s (NASDAQ: GOOG) Android operating system, and the 10-inch Samsung Galaxy is upgradable to Android 4.0.

Speaking of Google, it also increased its market share in the tablet market last quarter.  This is relevant for Google because its advertising business model relies on customers’ heavy usage of its apps, and Google’s $199 Nexus 7 comes pre-installed with a swath of popular Google apps.

Amazon (NASDAQ: AMZN) was also impressive.  Amazon has 9% of the tablet market, a fair share considering the company just released its Kindle Fire products.  I expect Amazon’s $199 Fire to be competitive during the fourth quarter because of the Christmas season.

Amazon often advertises its Kindle products on its homepage, a move that Google once tried.  Christmas shoppers who do their buying on Amazon will be confronted with the product numerous times over the coming months, potentially upping Amazon’s share.

Finally, I am expecting a decent showing in the fourth quarter from Microsoft’s (NASDAQ: MSFT) Surface tablet. 

Downsides:

  • $499 starting price.
  • The product is only appearing in about 34 pop-up stores throughout the U.S., limiting distribution
  • Most customers will not be able to “play” with the tablet before ordering it, though Microsoft’s website does a good job of describing the product
  • Windows RT – the basic operating version of Windows 8 that comes on Surface tablets right now – cannot operate some of Microsoft’s older apps

Benefits:

  • Microsoft’s “tiles” is a unique way of using a tablet device
  • The device is sleek and chic
  • Microsoft has a huge base of Windows users
  • According to a Motley Fool article, Microsoft reportedly sold out of its pre-order Surface tablets in the U.S. and in the UK

No “Mini” Sales Number

While Apple’s market share did tank in the third quarter, I expect it to rebound in the fourth quarter.  Apple’s iPad Mini recently hit the market, and it is likely that some Apple customers delayed iPad purchases in the third quarter to wait for the new Mini.

Will the Mini gain strong traction?  I think so.  Here is why:

  1. The 7.9-inch screen is smaller than the iPad’s 9.7-inch screen, making the Mini easier to carry around and easier to hold in one hand.  However, the screen is larger than competitors’ 7-inch screens for comparable products.
  2. The Mini weighs less than 11 ounces, compared to 1.44 pounds for the regular iPad.  This may not sound significant, but when users read an e-book for 30 minutes straight, the weight difference is noticeable.
  3. Staying true to form, the Mini has a glass and aluminum body like other iPads, instead of the plastic that other tablet-makers use.
  4. The $199 Nexus 7 and Kindle Fire HD do not have a rear camera.  The Mini does.
  5. The Mini gives customers the option of “cellular data connectivity.”  The Fire HD does not.

Will Its Share Rise?

In all, I expect Apple’s fallen market share to recover next quarter, as customers begin to scoop up the $329 Mini tablet.  Despite its cost premium, the Mini offers tablet users the high-quality of Apple, wrapped into a sleek design and slim trim.

Is Apple in trouble? No.

 

 

 

 


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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