Apple Could Be About to Lose Another Market to Samsung

Samsung's (NASDAQOTH: SSNLF  ) dominance of the smartphone market didn't take long: The original Galaxy S debuted in 2010. By the fall of 2011, the company had overtaken Apple (NASDAQ: AAPL  ) as the world's largest seller of smartphones. Last year, Samsung shipped more than 300 million of the devices -- Apple sold only half as many iPhones.

But the Korean tech giant has had considerably less success when it comes to tablets. The first Galaxy Tabs debuted nearly four years ago, and still, Apple's iPads far outsell Samsung's tablets. Yet, if current trends continue, it won't be long until Samsung is selling more tablets than Apple.

IDC's latest data highlights a troubling trend
Apple shipped 16.4 million iPads last quarter, down from 19.6 million in the prior year (a 16.1% annual decline), according to IDC. Samsung, meanwhile, shipped fewer tablets -- 11.2 million -- but on an annual basis, shipments rose markedly, up 32%. If these trends were to continue, then by the first quarter of next year, Samsung will be shipping more tablets than Apple.

Apple's tablet weakness is not a recent aberration, but an ongoing trend. With the exception of the holiday quarter, when Apple benefited from a refreshed product line, its tablet sales have been stagnating for nearly a year. By itself, this could be a sign of tablet market saturation, but given Samsung's rapid growth, Apple's tablet weakness might be restricted to the iPhone maker.

What's taken Samsung so long?
If Samsung does manage to overtake Apple in the first quarter of 2015, it will have been more than four years in the making -- a relatively long time compared to smartphones. This discrepancy appears to highlight a number of distinctions between the smartphone market and the tablet market.

The underlying operating system, of course, is worth mention. Samsung's original Galaxy Tab shipped with Android 2.2 Froyo, a version of the mobile operating system that wasn't intended for tablets. Its follow-up, Honeycomb, was, but was widely criticized. It wasn't until Ice Cream Sandwich, released in 2012, that Google's operating system was truly capable of delivering a solid tablet experience.

But perhaps more important is the relative desire of tablets in particular markets. In emerging markets, where Samsung dominates Apple in smartphones, tablets just aren't as popular.

Consider China: Last year, according to IDC, Chinese consumers purchased some 350 million smartphones. In comparison, their demand for tablets was tiny -- research firm Analysys found that just 4.35 million tablets were sold to Chinese consumers in the third quarter of last year.

Tablets appear to be a luxury item for many emerging market consumers. In the second quarter of 2013, IDC reported that phablets (smartphones with large screens) outsold both tablets and laptops combined in the Asia-Pacific region (excluding Japan). As a hybrid device, these large phones are obviously appealing to consumers on a strict budget, and even in developed economies, analysts concede that they could have some cannibalizing effect on tablet sales. Apple analyst Gene Munster, for example, believes that the iPhone 6 (if it ships with a considerably larger screen) will weigh on sales of the iPad Mini.

Investors appear to be overlooking Apple's struggling iPad
With Apple shares rising back above $600, investors appear to be overlooking Apple's disappointing tablet business -- and for good reason. The iPhone remains Apple's primary product, accounting for more than half of its revenue and much of its profit. Despite competition from Samsung and others, that business remains resilient.

Apple's tablets don't have the benefit of carrier subsidies like its smartphones do, while consumers in general don't value their tablets as much as their handsets. For now, Apple's disappointing tablet business doesn't appear to be much of a problem, but barring the introduction of a new, revolutionary product, the iPad's steady market share erosion is proving Apple to be a one-product company.

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Read/Post Comments (7) | Recommend This Article (2)

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 May 06, 2014, at 10:22 AM, jdmeck wrote:

    Sam, You have a distorted view of reality. When Samsung starts to sell more phones that are at the same level as the iPhone, we will talk.

  • Report this Comment On May 06, 2014, at 10:29 AM, melegross wrote:

    My lord, I'm so tired of hearing these fake numbers from IDC, Gartner, and others. What is wrong with you people? It's been shown several times, with real numbers, forced out at trials, that Samsung's sales of both smartphones and tablets are far less than these false guesses these companies, and incompetent analysts make.

    We've seen that their tablet sales have been as little as 10% of announced shipping numbers from Gartner, IDC and others. Yet, despite that, those companies continue to report numbers they have no way of verifying.

    Even after the real numbers come to light, these companies don't change their own numbers to match them. Why are they still being listened to and quoted?

    When we go by usage data, the real numbers come out. Samsung has possibly 10% of the number of sales that Apple does, in tablets. Amazon has less, in Kindle Fire sales, and everyone else has almost nothing.

    The only other "tablets" are those from companies making $100 models, or less, for third world countries.

  • Report this Comment On May 06, 2014, at 11:07 PM, Chiam wrote:

    Sam the Flim flam man,

    I knew you wrote this article when I saw the headline. You are the Michael Blair of the Fool.

    You tell story using the data that helps you and you ignore all else.

    iPad? Well Apple is losing share because people are buy larger phones and using them for phones and tablets. I coined the term Phablets.

    iPhone6 will get many of those people back. Tablets won't go up but the iPhone 6 will sell like nothing you have ever seen.

    See you in Sept.

  • Report this Comment On May 06, 2014, at 11:40 PM, skippywonder wrote:

    I hope they lose the tablet market to Samsung in the same way they lost the smartphone market. In other words, that they end up with the lion's share of the profit and leave the low margin crumbs for everyone else. Yes, that would be another huge "loss" for Apple.

  • Report this Comment On May 06, 2014, at 11:55 PM, HiramWalker wrote:

    Apple's iPad decline was small, after adjusting for channel fill, yet average selling price increased. This is a pretty good showing when your competition is doing 2 for 1 sales and has a drop in average selling price.

    Buying a crap tab just means that next time the bitten customer will graduate to Apple, if they can afford it. If not, they probably won't bother to buy again. Thus, declining tablet sales, as Apple maintains its profit margins. Eventually low margin selling will hurt even Samsung.

  • Report this Comment On May 07, 2014, at 1:41 AM, SimchaStein wrote:

    The first premise is false. Apple is still very strong in SmartPhones, when you count subscribers as reported in ComScore.

    But the reports of shipments shows a very different story.

    Why?

    When you (the Android market as a whole) ship every possible price point, a lot of products does NOT sell through or sells at firesale prices. And a lot of product is quickly discarded. Or the buyers don't sign up for data planes. Counting shipments; vs counting subscribers, does NOT mean that Apple has lost a market.

  • Report this Comment On May 07, 2014, at 6:22 AM, secularinvestor wrote:

    @ melegros

    Good post.

    Sam Mattera needs to do a bit of proper research instead of making a fool of himself posting nonsense to an audience who obviously know a lot more than he does about the way IDC, Gartner and Strategy Analytics all make money by false reports running down Apple in favour of their competitors.

    Sam - do yourself a favour and checkout AppleInsider to understand all the paid for rubbish and data manipulation by IDC, Gartner and Strategy Analytics.

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