Have Tablets Already Run Their Course With Consumers?

According to Best Buy (NYSE: BBY  ) CEO Hubert Joly, the tablet sales boom is already crashing lower. With over 1,000 brick-and-mortar retail stores, Joly has a good idea of what consumers are buying, and what devices are losing their appeal, which begs the question: Has the  tablet's brief period of remarkable growth reached an end?

What are the experts saying?
While Joly most definitely qualifies as an expert in the buying habits of electronics, it's quite fascinating to see the amount of research to support Joly's conclusion. Specifically, NPD DisplaySearch reported back in early July that for the first time tablet sales as a whole have fallen year-over-year .

Source: Geekwire

With that said, let's just pretend that tablet sales grow in the single-digits during 2014, or perhaps worse, decline, it would be a collapse from the 28% growth seen in just the fourth quarter of last year!

In other words, it would serve as a convincing statement that tablets have lost their consumer appeal. Furthermore, the first quarter's modest tablet growth of only 3.9% year-over-year combined with industry leader Apple's (NASDAQ: AAPL  )  8% decline in iPad unit sales to 13.3 million units help support the notion that tablet sales won't rise 20% this year, as IDC had expected. 

What's the cause?
Beyond the numbers, why are tablets sales suddenly crashing?

Over the last few years there have been several companies to place big bets on the growth of tablets, including Microsoft (NASDAQ: MSFT  ) , Samsung, and of course Apple, who creates more than 15% of its revenue from iPads.

Granted, many of those same companies like Microsoft also have an enormous PC and laptop presence, which according to Joly is a key reason for the changes that are taking place. Specifically, Joly notes that technology upgrades on older devices like laptops and PCs means that large touch screens are no longer a luxury, but rather come standard, and that consumers no longer have to purchase a tablet to gain access to their smartphone's operating systems.

Source: C3Group

Nowadays, consumers can buy a Windows PC with Windows 8 that works seamlessly with their Windows smartphone. In the past tablets were seen as an option to increase the screen size of their smartphone, but with PCs and laptops now acting as tablets of sorts, this option is no longer as meaningful. Not to mention, smartphone screens have also grown larger, many of which are of similar size as a tablet.

Tablets rest in the hands of Apple
In part, this old technology upgrade that Joly refers to has created cannibalization in the tablet space, with consumers able to have their big and small screens, PCs and smartphones, without the need for a tablet. Albeit, 250 million units is not a small number for tablet unit sales, but the point is that sales seem to have matured.

With all things considered, Apple has clearly experienced trouble with iPad sales during its last two quarters. However, it remains the one company that hasn't entirely merged the operating systems of smartphones and tablets with PCs and laptops (or Macs).

Apple's Mac computers do work in tandem with its mobile operating system, but the appearance is not identical, and Apple is yet to implement touch with any of its Mac products. Looking ahead it'll be interesting to monitor whether Apple follows the lead of Microsoft and others in making all of its devices completely compatible.

Source: IDC

If so, we could possibly see even faster cannibalization of tablets with Apple owning the largest piece of market share by revenue.

Foolish Thoughts
Another question to ponder is will a larger screen on the iPhone 6 cut demand for iPads, and ultimately the growth of tablets?

Until we know the answer, all we can do is wait, knowing that the market is peaking, and wonder if possibly Apple will once more recreate the tablet industry in October when it's expected to unveil the next iPad version . Now more than ever, Apple needs something fresh to boost the tablet market, not just minor software improvements, but rather a fresh look and significant hardware changes. Hence, Apple will be instrumental in determining whether the tablet's appeal with consumers has ran its course, or if the recent weakness is just a bump in the road.


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Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

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