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Apple's "Can't Win" Pill, Now in Tablet Form

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The breadth of Apple's (NASDAQ: AAPL  ) problems relative to the apparent strength of Google (NASDAQ: GOOGL  ) seems to be a bitter pill for the company and investors to swallow as the shift in dominance between these two behemoths continues. This week, research firm IDC released its current outlook for the tablet market, showing for the first time that Android is expected to outsell iOS for the entire year. With Apple sitting on a 40% decline from its historic high last fall, you must ask yourself if this is reason for concern or simply a reflection of a different business approach.

The song remains the same
When Google first introduced Android to compete with Apple's mighty iPhone, it was easily dismissed as an unimportant market participant that was too far behind to ever catch up. Android now commands a nearly 70% market share on a global basis, while iOS remains below 20%. This is tempered by the fact that Android has a much larger presence on the low end of the price spectrum, while iPhones are the preference of those looking for a premium product.

Along these same lines, the iPad that once created and defined the tablet market is facing the same kind of pressure that the iPhone experienced. According to IDC's projections, Android will account for 48.8% of the market in 2013, which is a significant increase from the 41.5% expected in the firm's last report. This comes as a part of an overall increase in the projected size of the tablet market in 2013, largely as a result of expanded expectations for lower-priced devices: IDC upped its forecast to 190.9 million units from the previously expected 172.4 million units.

To put this into some perspective, Apple had 51% of the market in 2012 but is projected to fall to 46% in 2013. This is not purely bad news for Apple, because a smaller percentage of a much larger number means that overall sales should continue to increase, but it underlines a trend toward cheaper Android products that Apple needs to address. In yet another market, the company must decide if it wants to compete across the price spectrum or remain a specialty brand. At the premium end, iProducts remain the aspirational choice for many consumers; the concern is that if Apple abandons this image, it will trade away its one major advantage.

Looking forward, IDC projects that Android's market share will peak in 2013, falling to 46% by 2017. By the same time, iOS is expected to be at 43.5%, with various Windows options coming in at 10.1%. By that time, IDC believes that worldwide tablet shipments will reach 350 million units. This is a big market, particularly to be so dominated by the top two players.

Is the tablet world shrinking?
One concession most Apple followers are willing to make is that the company was reactive when it released the iPad Mini. This has proved to be a good choice, given the shift to smaller tablets. According to IDC's Jitesha Ubrani: "One in every two tablets shipped this quarter was below 8 inches in screen size. And in terms of shipments, we expect smaller tablets to continue growing in 2013 and beyond." Full-size tablets are continuing to hold their own, but the trend is toward smaller versions that are easier to carry and operate.

This is particularly interesting given the trend toward increasingly large smartphones. Neil Mawston of Strategy Analytics said, "We expect 2013 to be the Year of the Phablet." This term refers to the roughly 5-inch-screened devices that are a hybrid between smartphones and tablets. This is another area that Apple seems hesitant to enter, but this year's product cycle is still young.

Cheaper options
Last fall, DigiTimes released a rumor that Google was planning the release of a $99 tablet that would put even more pressure on the premium products offered by Apple. While the rumor has thus far proved to be just that, it highlights a central issue affecting the market. Price drives volume in many cases, and with product cycles becoming shorter and shorter, spending up for a premium product doesn't always make sense.

In the tablet market, price is an even more critical factor. Unlike with your smartphone, the bulk of tablet use can be done on a Wi-Fi network, eliminating the need for another cellular subscription; this means there's no subsidy to defray some of the device's cost. To that end, when comparing a full-size iPad with a 7-inch Google Nexus 7, while the iPad may offer a somewhat richer experience, the Nexus 7 can be upgraded twice with its staring price of $199 before you will have spent the amount needed to get the iPad. While the argument exists that the iPad may last as long, the allure of new products shouldn't be underestimated.

Regardless of your relative opinion between iOS and Android-based tablets, Google has been gaining ground and is now expected to surpass Apple in volume. Never before has it been more necessary for Apple to decide if it wants to be a premium brand or an across-the-board competitor. The company has taken it blows, and it's time to set a direction and then defend it.

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 more than 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 (11) | Recommend This Article (6)

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 March 13, 2013, at 11:23 PM, marv08 wrote:

    "Regardless of your relative opinion between iOS and Android-based tablets, Google has been gaining ground and is now expected to surpass Apple in volume. Never before has it been more necessary for Apple to decide if it wants to be a premium brand or an across-the-board competitor. The company has taken it blows, and it's time to set a direction and then defend it."

    Well, Apple has decided ages ago, and never changed its position. Importance: 1. Quality, Design & Usability, 2. Profit, 3. Market Share. No need to change that.

    The stubborn attempts of the media and outfits like IDC and Gartner to twist the numbers in any possible way, just to fire anything at Apple, do not change the facts. 1. Apple's profits are lightyears ahead of the competition. 2. The Kindle Fire OS is not Android, several Chinese and Indian forks are also not Android. A fork is an independent product. They do not come with core Android apps, they have different software, different search, they can't use the Play store... they are not Android. Correct the statistics accordingly, and get a clearer picture. 3. Add this up, and you will see, why Apple does not need to change anything. Releasing new and better products they do anyhow.

  • Report this Comment On March 13, 2013, at 11:25 PM, techy46 wrote:

    "Android is expected to outsell iOS for the entire year."

    Impossible since Android is given away free by Google. What you really mean is devices runiing Android, the free cloneware from Google, will outsell devices running software developed with the revenues from the sale if those devices like iOS and Windows. Apple and Microsoft should let cheap consumers have Google's free software and keep getting the royalties from the devices makers like Microsoft's $5 for every Android device sold. Why develop software and give it away unless your Google and getting revenue from ad clicks.

  • Report this Comment On March 13, 2013, at 11:46 PM, bonzo99911 wrote:

    Android is expected to OUTSHIP iPad?

  • Report this Comment On March 14, 2013, at 12:11 AM, HiramWalker wrote:

    If you check back a few years of IDC predictions, you will find they never end up very close to the truth.

  • Report this Comment On March 14, 2013, at 12:29 AM, badkat7 wrote:

    Having played with Google Glass my feeling was "blah!". The idea is brilliant, the execution is (at present) poor and unimaginative. So moving to Apple I'd say their biggest shortfall is in Software. The iPad just doesn't play well with Windows PC's. iTunes in particular is rapidly becoming a horrible mess of an application; it is idiosyncratic, obtuse and increasingly non-intuitive (especially for PC owners). So when Microsoft came out with their Surface Pro I jumped ship. To put my decision in perspective, I have owned iPhones, iPads and iPods since the dinosaurs were reduced to an oily residue... Apple could easily fix ALL their problems but suffer the myopia of most successful companies - they think ANYTHING they do is automatically wholesome, right and perfect.

  • Report this Comment On March 14, 2013, at 1:36 AM, SimchaStein wrote:

    No big deal.

    1) eReaders dropped by about 8M. But iOS trails all of Android by less than 6M. So if we back-out the low-end eReader androids, it's basically a tie.

    2) It's forecast, not a fact.

    3) Apple's actual growth in units is substantial - healthy growth.

  • Report this Comment On March 14, 2013, at 1:42 AM, SimchaStein wrote:

    Adding. NAND prices are coming down, So Apple's margins will improve. And they will likely lower the iOS device prices to reflect current NAND cost.

  • Report this Comment On March 14, 2013, at 1:55 AM, bonzo99911 wrote:

    Is this the same agency that predicted that the tablet market will be shadowed by netbooks?

  • Report this Comment On March 14, 2013, at 10:48 AM, neocolonialist wrote:
  • Report this Comment On March 14, 2013, at 10:49 AM, neocolonialist wrote:
  • Report this Comment On March 14, 2013, at 12:11 PM, kickbishopbrenna wrote:

    badkat7, great analysis.Still feel its now a stubborn blue-chip whose profit will settle to the average over time..the good days will be fewer at this level.

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