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What if Apple's Tablet Market Share Keeps Dropping?

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The tablet market is siphoning the growth right out of the PC market.

Market researcher IDC has just released some new data on the tablet market, and it now thinks that this year will see total unit shipments of 122.3 million. That's marginally up from its prior forecast of 117.1 million. IDC also bumped its 2013 forecast from 165.9 million to 172.4 million. By the time 2016 rolls around, we could be looking at a global market shipping 282.7 million units.

So you're saying there's a chance
The trend toward smaller displays, which allows for lower prices and greater mobility, is spurring consumer adoption. That's thanks to strong devices in the 7-inch Android camp, like's (NASDAQ: AMZN  ) Kindle Fire HD and Google's (NASDAQ: GOOGL  ) own Nexus 7. While Apple (NASDAQ: AAPL  ) may be a follower in the small-sized category, the iPad Mini maker will still enjoy its fair share of unit volumes.

IDC believes the Android is now gaining traction in the market, and will likely finish out the year with a 42.7% market share of operating systems. In the meantime, iOS is expected to fall a few points to "just" 53.8%. Microsoft (NASDAQ: MSFT  ) is just now getting in on tablets, and it's slow start; Windows 8 and Windows RT may only grab it a 2.9% share this year. However, the software giant is expected to garner upwards of 10.3% of the market by 2016.

Operating System

2012 Market Share Forecast

2016 Market Share Forecast













Source: IDC.

Even if Apple continues to lose its stranglehold on the tablet market and iOS market share dips below 50%, we're still talking about owning half of a 282.7 million-unit market. That's potentially 140 million iPads being sold. Compare that to the 58.3 million iPads that Apple sold last fiscal year, and there's plenty to look forward to.

iPad average selling prices have been on the decline ($535 last quarter), a trend that should continue with the recent launch of the iPad Mini, but an ASP of $450 in 2016 would be $63 billion in iPad revenue.

Show me the money
These figures only refer to unit share, and say little for revenue or profit share. Since the top two Android devices today, the Kindle Fire HD and Nexus 7, are sold at cost, there's very little room for third-party OEMs to price and try to generate a margin while also avoiding competing directly with the iPad. That's a tough proposition for hardware manufacturers since they can only make money up front.

Early estimates even figure that Microsoft's Surface RT generates higher gross margins than even the iPad (before other expenses like software development and licensing fees). Depending on what portion of the Windows slice is Surface sales, Microsoft could generate some noteworthy tablet profits. Surface may be a small fish right now, but Steve Ballmer has made it clear that Microsoft is transforming into a device company, so more Surface devices seem inevitable.

Another sufferer
Just as low-end PC sales are inevitably cannibalized by tablets, so to will e-readers. Dedicated e-readers from Amazon and Barnes & Noble (NYSE: BKS  ) are expected to suffer as consumers trend toward multifunction media tablets instead. E-reader units this year should come in around 19.9 million, down from the 27.7 million that moved last year.

However, Amazon probably doesn't really care all that much which device consumers buy, since it sells its hardware at cost. That includes the e-tail giant's Kindle tablets as well as e-readers. Amazon still cares a little, though, because it can sell more kinds of content to Kindle Fire users.

Spoiler alert
Apple can't maintain its stranglehold on the tablet market forever, especially with how much growth is expected. The good news for investors is that even as its unit share trends lower, it will still make an absurd amount of money.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

Read/Post Comments (2) | Recommend This Article (3)

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 December 06, 2012, at 6:38 PM, ConstableOdo wrote:

    Does anyone know how Microsoft can generate higher gross margins on their tablet than Apple can on the iPad? Wouldn't Apple have better component deals than Microsoft especially things like NAND memory which Apple basically stockpiles. Apple should also have much greater economies of scale than Microsoft when it comes to building hardware. I'd just like to know in what area Microsoft has the edge in cutting costs where Apple can't.

  • Report this Comment On December 07, 2012, at 12:06 AM, nanarchy wrote:

    ConstableOdo, Apple have been alienating their component suppliers with lawsuits. e.g. Samsung. It would not surprise me at all if other companies could negotiate better deals. Also remember Apple doesn't really make hardware, they just buy components and integrate them (actually pay someone else to integrate them)

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