Let's face it: Steve Jobs was wrong. The Apple (NASDAQ: AAPL ) co-founder famously bashed smaller tablet form factors in 2010, saying that a 10-inch device was the perfect size. Then Apple launched the iPad Mini two and a half years later, and now the product family will never be the same.
Consumer demand has been quickly shifting toward smaller form factors, starting most notably with Amazon.com's (NASDAQ: AMZN ) Kindle Fire lineup. The e-tail giant was able to rank No. 3 in the tablet market in the fourth quarter with an estimated 6 million units shipped, and the company's larger model doesn't seem to have been selling particularly well.
Thanks to that transition, larger display panel shipments throughout the industry are getting eaten alive.
Paint me a picture
NPD DisplaySearch recently released some estimates on tablet panel shipments in January, and the data shows a precipitous drop in larger sizes (9 inches and above) accompanied by an increase in smaller sizes (7 to 8.9 inches). The total market decreased sequentially from December, which is expected because of seasonal patterns.
Tablet PC Panel Shipment in Dec.'12 and Jan'13 (Million units). Source: NPD DisplaySearch.
Shipments of 9.7-inch panels fell dramatically from 7.4 million in December to 1.3 million January -- an 82% drop off. Of course, that size panel is primarily the full-sized iPad. Within the larger segment, the 10.6-inch display is predominantly Microsoft (NASDAQ: MSFT ) Surface (both RT and Pro models). Those shipments went up slightly, which is expected since the software giant just recently launched the Pro model while yesterday announced it was expanding international availability of the RT model.
Paint me some bigger pictures
It would seem that all the reports that Apple is cutting panel orders have some legs after all. The iPad maker reportedly reduced 9.7-inch panel orders from LG Display (NYSE: LPL ) by 90% in January to just 600,000, while Sharp has nearly halted production of that size also.
Both Tim Cook and I have warned investors about reading too deeply into individual data points related to Apple's supply chain, since they can't accurately paint a bigger picture. That being said, DisplaySearch does detail its estimates on Apple's production plans for the year, and the researcher believes that Apple has reduced its overall iPad build plans amid a shift toward the iPad Mini.
Source: NPD DisplaySearch.
In December, the researcher estimated that Apple was planning to ship 100 million total iPad units in 2013, a figure that's now been reduced to 88 million units. Since DisplaySearch keeps its fingers on the broader display industry's pulse, this estimate may be more meaningful than reported order activity at any single supplier.
Sources: Apple and NPD DisplaySearch.
Possible reduction notwithstanding, shipping 88 million tablets in 2013 would still be quite a respectable feat and would represent 34% unit growth from the 65.7 million iPads sold in 2012. The shift in product mix will inevitably have downward pressure on average selling prices, a trend that began last quarter.
Initial estimates also showed that the iPad Mini carried a higher hardware gross margin than the larger model, which is just another reason investors shouldn't be overly concerned with cannibalization. Time and time again, Apple has reiterated its philosophy that it doesn't worry about cannibalism. Tim Cook recently expressed his belief that if a company uses that fear as a major consideration in what products to pursue, it signals the beginning of the end. So long as Apple can continue churning out products that consumers line up for, the rest will take care of itself.
Steve Jobs' biggest mistake?
DisplaySearch estimates that the total panel market will jump from 160 million in 2012 to 254 million in 2013, with more than half of those displays going toward smaller devices. There are numerous examples of Steve Jobs' being wrong, but this one might have been his biggest mistake.
At this point, investors can't help wondering what could have been like if Apple had started with the 7.9-inch form factor and expanded up. Rivals would have never even had a chance.
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