Is Apple Really Losing Ground in Tablets?

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

Apple (NASDAQ: AAPL) made headlines yet again with another market share landmark. According to research from firm Canalys, Apple grabbed over 20% of the worldwide PC market (data includes tablet sales). Helped by tablet sales, Apple was able to push through a whopping 27 million units during the quarter. In fact, Apple would have sold even more if it wasn't limited by supply constraints.

But buried in the report was a less exciting number. Apple's overall tablet share dipped below 50% for the first time – reaching 49%. Does this mean Apple is losing ground in tablets? Not really.

Apple dominates tablet web traffic

Though Apple may not have grabbed share in Q4 as fast as Samsung, who saw an increase of 226% in tablet sales, Apple shines when it comes to tablet web traffic. As noted by Motley Fool contributor Evan Niu, CFA, "Usage statistics are meaningful because users aren't likely to upgrade devices that they don't use. The good news for Apple is that people sure like using iPads."

According to data from Chitika, the iPad captures a whopping 81% of tablet web traffic in the U.S. and Canada. Amazon's (NASDAQ: AMZN) Kindle Fire comes in second at 7.7%. Samsung and Google's (NASDAQ: GOOG) Nexus 7 grabbed very little share at 3.9% and 1.7%, respectively.

An onslaught of cheap tablets

Though Apple's success at intriguing its users with an easy-to-use and seamless experience is definitely a valuable asset, the momentum of cheaper tablets causing Apple to lose market share can't be ignored. Indeed Apple has responded already with an iPad Mini that has been accepted with enormous demand. According to Canalys' estimates, the iPad mini made up about half of Apple's tablet shipments during Q4.

But as far as sub-$200 price points, I propose that Apple has little (if any) interest in this market. In the meantime, Apple has been able to increase tablet sales and revenue without offering any tablets for less than $329. So as the tablet segment continues to grow at mind blowing rates (75% year over year, according to Canalys), Apple can sacrifice a few percentage points in market share and continue to relish its premium profit margin.

Companies like Google and Amazon now offer high-quality tablets in the sub-$200 dollar range, profiting from their established ecosystems through content sales. The phenomenon is putting major pressure on hardware only original equipment manufacturers (OEMs). But there's no doubt that Google and Amazon would both take larger profit margins on there if they could. But in light of the competition in the tablet market, they simply can't

What investors need to keep in mind is that Apple has a powerful ecosystem too. In fact, Apple claims a whopping 500 million iTunes accounts, contributing a nice $2.1 billion to Apple's bottom line in the fourth quarter alone – that's getting close to Google's total net income in Q4, which amounted to $2.8 billion. Point being, Apple could still profit from content by selling break-even hardware too. But they simply don't need to. The company possesses pricing power that is too often overlooked.

Going forward, Apple will continue its push at the $329 price point, but there isn't enough pressure yet for Apple to succumb to the $200 range. 

The bottom line

Loss of market share isn't always a downer. Apple is still capturing new customers, with iPad unit sales growing by 48% in the December quarter, year over year. And despite a lower average selling price (ASP) due to the introduction of the iPad Mini, Apple still managed to increase revenue by 22%. More importantly, Apple's customers are actually using their tablets much more than competitors' customers are using theirs.

As other companies are forced to sell tablet hardware with little to no profit margins in order to gain market share, Apple continues to please customers, increase sales, and maintain pricing power.

Is Apple really losing ground in tablets? No, not really.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends, Apple, and Google. The Motley Fool owns shares of, Apple, and Google. 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.

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