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The desktop PC ruled the tech world for nearly three decades. Most users simply had no other options. Laptops might have been around almost from the beginning, but compared to desktop PCs of the day, they were expensive and inconvenient. Early desktops, including the costlier Apple (NASDAQ: AAPL ) Macintosh, retailed for a fraction of a laptop's cost. Of course, technology improves. Laptops claimed the sales crown from desktops several years ago. Now the "portable PC" may already be falling behind.
Progress toward a portable world
Apple's history of computing innovation goes beyond the Mac and the mobile computing standards it's helped create over the past several years. Its PowerBook, first released in 1991, set many laptop design standards over the course of its development, and vaulted Apple into the portable sales lead for years. Without the PowerBook, Apple might not have survived to bring Steve Jobs back onboard for his second act.
Fast forward to 2003. Notebook PC sales (a term used interchangeably with "laptop" by industry analysts) finally outpaced desktop sales in the United States. In May of 2003, laptops made up over 54% of all retail computer sales, compared with less than a quarter of sales three and a half years earlier.
Fast forward again to 2008. The laptop sealed its victory in the U.S., dominating all buying categories in the third quarter -- consumers, businesses, government, and educational users all gravitated toward portability. The consumer market shifted first. 64% of all consumer PCs sold in 2008 were laptops. By the third quarter of 2008, 55% of the entire American PC-buying market had taken the portable plunge. The average laptop price had fallen under $1,000 -- an important psychological buying barrier -- to $888.
The third quarter of 2008 also marked the first time that laptop sales outpaced desktops around the world. Global laptop shipments in the third quarter rose nearly 40% from 2007 to reach 38.6 million units, narrowly edging a declining desktop market that shipped only 38.5 million units.
It took nearly two decades from the introduction of the first successful portable PC for laptops to dominate the field. Apple clearly learned something from the PowerBook, because tablets are about to surpass the laptop after only two years of commercial success.
Tablets for everyone
This holiday season should be a big one, especially for tablets. NPD DisplaySearch now anticipates that 21.5 million tablets will be shipped during the fourth quarter in North America, far outpacing the 14.6 million laptops that should be shipped for the same period. Looking further out, 2013 and 2015 will be big years for tablets. North American tablet shipments will reach 80 million next year, compared to 63.8 million laptops. Globally, tablets should surpass laptops by 2015. NPD DisplaySearch expects 275.9 million tablets to ship that year, compared to 270 million laptops.
This may underestimate the explosive growth potential of the tablet market. In 2010, the first year Apple offered the iPad, 19.4 million tablets shipped worldwide. In 2011, 68.7 million tablets shipped, with Google's (NASDAQ: GOOGL ) Android platform getting a serious boost from the popular Amazon.com (NASDAQ: AMZN ) Kindle Fire, despite the fact that it was released in the fourth quarter of that year and sold almost exclusively in the United States. In the third quarter of this year, 27.8 million tablets shipped worldwide. Between the updated Kindle Fire, the new iPad Mini, and Microsoft's (NASDAQ: MSFT ) intensely promoted Surface tablets, 21.5 million sales in the U.S. is well within reach, and may prove to be just the beginning.
Tablet costs, just as with laptop costs, are dropping fast. In 2010, the average cost was north of $600. In the first quarter of 2012, average tablet prices dropped to $386, according to IMS Research. Other analysts peg the average price somewhere just north of $400.
There are going to be winners, losers, and companies struggling to stay on the treadmill in any big technological shift. Let's take a quick look at some well-placed tablet players, and at the end of our overview, you'll have the opportunity to dig a bit deeper.
Apple's tablets all boast high gross margins, the mark of any successful consumer product. The iPad Mini has even higher margins than the full-size iPad, so Apple stands to profit handsomely no matter which size consumers prefer.
The iPad's components are made by a variety of suppliers. Its Retina displays are crafted by LG Display (NYSE: LPL ) , AU Optronics (NYSE: AUO ) , Samsung, and Sharp, with Samsung providing many of the displays for the larger iPad 3. Samsung also manufactures Apple's proprietary A5 processors, which gives it a surprising amount of supply power over a company that's been suing it all over the world lately. Cirrus Logic (NASDAQ: CRUS ) provides the audio chip for the iPad Mini, and STM Microelectronics (NYSE: STM ) provides the accelerometer. Skyworks Solutions (NASDAQ: SWKS ) provides multiple iPad components, and Omnivision Technologies (NASDAQ: OVTI.DL ) regained its role as an Apple supplier of note this year by providing the iPad 3's front and rear camera sensors.
Microsoft's trying to play the same high-margin game as Apple. Its signature flexible keyboard covers, which cost less than $20 to produce, include a Freescale Semiconductor (NYSE: FSL ) microcontroller and an Atmel (NASDAQ: ATML ) touchscreen controller. Atmel also provides touch controllers for the main tablet, as well as its keyboard cover. Samsung has a critical component role for many of the Surface's costlier parts. NVIDIA (NASDAQ: NVDA ) provides the brains of the Surface with its Tegra 3 mobile processor. A higher-end Surface using Intel's (NASDAQ: INTC ) chips is expected to arrive later, but it may struggle to catch on in a lower-cost tablet environment.
NVIDIA also powers Google's Nexus 7 tablet, while Texas Instruments (NASDAQ: TXN ) provides the processor for Amazon's Kindle Fire HD. Rumors have it that Amazon may buy TI's mobile chip segment outright, as TI isn't finding mobile to be profitable enough for its tastes. Both the Nexus 7 and the Kindle Fire use InvenSense's (NYSE: INVN ) accelerometer and Texas Instruments' power management chip.
Apple, Amazon, and Microsoft are bound to battle it out for superiority in the tablet space over the next few years. Will Apple be able to maintain its high margins? Can Amazon succeed with a content-sales strategy that leads it to sell Kindle Fires at a loss? Will Microsoft ever overcome Google's growing domination of mobile operating systems? The Fool's top tech analysts want to help you answer these questions, and many more. That's why we've created a premium stock research service dedicated to your favorite tablet players. You can subscribe to one (or more!) for a full year worth of detailed analysis and regular updates. There's no better way to stay ahead of the tablet race.