Are Tablets Becoming a One-Horse Race?

Some things never change. In February I said, "Apple (Nasdaq: AAPL  ) iPad is the clear winner in the tablet wars. … The remaining horses in this race largely appear to be high-risk, high-reward long shots." A lot has happened in the tablet wars since then, but one thing hasn't changed: The iPad still rules. 

Another one (iPad wannabe) drops its price
Little more than a month after the July 1 introduction of Hewlett-Packard's (NYSE: HPQ  ) TouchPad tablet, the company has permanently dropped the price of the entry-level model by 20%, from $499.99 to $399.99. That's quite an about-face for HP, which spent $1.2 billion to acquire Palm last year in hopes of beefing up its smartphone and tablet offerings. The company took its time putting the finishing touches on the TouchPad to get it right. Management expressed optimism earlier this year that its then-unreleased TouchPad tablet would help improve the PC division's growth and earnings.

HP seemed to be testing the lower price in early August with widely available instant discounts of $100 -- including at HP's online store. That can't bode well for margins, given that it was priced to match iPad prices and Apple CEO Steve Jobs has said his company is pricing aggressively.

HP isn't the first iPad wannabe to cut prices. Motorola Mobility (NYSE: MMI  ) priced its Xoom Android tablet at a premium to the iPad when it launched in February but has since reduced its prices. Nonetheless, management expects Xoom shipments to decline this quarter… though that may be at least somewhat related to an upcoming product refresh.

How do you like them apples?
Apple said on its July earnings call that it's selling iPads as fast as it can make them. Retail stores sometimes have trouble keeping them in stock. The company is working to expand its iPad manufacturing capacity.

In contrast, a recent Wall Street Journal article noted that iPad competitors focus on the number of tablets they've shipped but won't discuss the number that are being sold. The difference is crucial: Some industry watchers say so many iPad wannabes are sitting in "the channel" that price cuts are needed to move them out.

What about the other horses in this race? Research In Motion (Nasdaq: RIMM  ) seemed to have high hopes for the PlayBook tablet it launched in April, but indications so far are that the PlayBook is a dud. Dell's (Nasdaq: DELL  ) Streak tablets and Lenovo's ThinkPad and IdeaPad tablets often don't even warrant a mention in articles on tablets. Sony's (NYSE: SNE  ) Android-based S1 and S2 have unique designs that have received encouraging reviews, but they aren't due out until this fall.

Did the second horse just get injured?
Samsung Electronics was early to launch an iPad alternative, the Android-based Galaxy Tab. It appears to be the only other horse worth watching in this race, with millions of units shipped. But that momentum may not last: Apple has sued Samsung for patent infringement in a number of regions, including the United States, Australia, and Europe. On Aug. 9, a German court banned Samsung from distributing its Galaxy Tab 10.1 tablet in Europe, pending a hearing scheduled for Aug. 25.

This dust tastes like… dirt
Why is the iPad leaving other tablets eating its dust? When NVIDIA's (Nasdaq: NVDA  ) CEO said last May that Android tablets weren't selling well, he explained: 

It's a point-of-sales problem. It's an expertise-at-retail problem. It's a marketing problem to consumers. It is a price-point problem. And it's a software richness of content problem.

He also said he believed the problems were getting solved, with tablet manufacturers adjusting their plans and Best Buy setting up a dedicated location called Tablet Central. (NVIDIA's Tegra 2 chip is the brains behind both the Motorola Xoom and Samsung's Galaxy Tab 10.1.)

Foolish takeaway
Evidence suggests that Apple remains a clear winner in the tablet wars. The iPhone and iPod demonstrate Apple's ability to fight off competition: The iPad could make it a triple crown. The remaining horses in this race largely appear to be high-risk, high-reward long shots.

How do you think the tablet wars will play out? An easy way to stay on top of market developments is The Motley Fool's free new My Watchlist feature. You can get up-to-date news and analysis by adding these stocks to your Watchlist now:

Fool contributor Cindy Johnson owns no shares of any stock mentioned in this story. The Motley Fool owns shares of Research In Motion, Apple, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple, NVIDIA, and Best Buy, writing puts in NVIDIA, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.


Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 14, 2011, at 1:23 AM, fatmonk wrote:

    Unlike the phone, consumer would ask "Why do i need a tablet?",

    Content, content and content.

    Apple introduce iPad with a lot of existing content on iPhone OS... Apple would not sell iPads well if Apple does not have content and master salesman.

    While others manufactures are struggling building up contents... Apple is gluing its Macs and iDevices with iCloud.

  • Report this Comment On August 14, 2011, at 2:09 AM, cycorp89 wrote:

    Switched over from Sony Vaio in 2005 at the push of my younger brother in law who has bought Apple products like the the cult fave Powerbook since 2001 and I've never looked back. It just works!

    I should pay more close attention to his 'rule breaking' vision. To think if I'd only bought AAPL in 2001...

  • Report this Comment On August 14, 2011, at 6:26 AM, rlcato wrote:

    Did the second horse just get injured?

    Nope, it just turned up lame.

  • Report this Comment On August 14, 2011, at 2:37 PM, TMFGemHunter wrote:

    I think this is all true, by and large. But the upcoming Amazon tablet is the real competition for iPad, at least of the Android OS tabs. That's not to say it's going to catch up to Apple anytime soon, but Amazon can compete on price and content in a way that nobody else can.

  • Report this Comment On August 14, 2011, at 3:22 PM, techy46 wrote:

    Thank you, Apple. Now, let's see how many vendors sign up to make Windows 8 tablets at the Microsoft BUILD conference on Sept 16-17 2011. They'll be able to use any processor from ARM or X86 manufacturers including AMD, Intel, Qualcomm, TI. Let the mobile wars begin.

  • Report this Comment On August 14, 2011, at 4:24 PM, sscutchen wrote:

    Windows 8? Seriously? Hasn't Microsoft been trying to get folks to buy pointer-based systems in touched-based hardware for, like a decade?

    Do you really think that Apple would have gone to the trouble to branch the underlying MacOS sturcture into two UIs and write different versions of everything that runs on them if there wasn't a significant handicap to trying to run a UI and programs as both pointer-based and touch-based? It would have been WAY cheaper to have a common system. And a common set of software.

    The only way that this succeeds is if Microsoft creates two independent UIs, one running touch-based programs and the other running conventional pointer-based programs, both based on a Windows 8 underpinning. But they won't do that because they don't have the touch-based ecosystem; no software, no developers. They have to rely on their pointer-based software, and that won't sell on a touch-based device.

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