Tablets remained a red-hot growth area in the fourth quarter of 2012. According to IDC, 52.5 million tablets were shipped worldwide during the fourth quarter of 2012, an increase of more than 75% since last year. Sequentially, the holiday season was a blockbuster hit for tablet sales, having risen over 74% since the third quarter of 2012. A decline in average selling prices, a wide array of product offerings, and increased holiday spending all contributed to pushing the tablet market to record levels.
As a result, Apple (NASDAQ:AAPL) lost ground to Google Android in the tablet space. By the end of the quarter, Apple controlled 43.6% of the tablet market, an 8.1% loss since last year. Samsung continues to encroach on Apple's turf, increasing its market share by 7.8% year over year and ending the year with 15.1% of the market.
Slower than the industry
We've seen this story once before in smartphones, where Apple has begun growing slower than the industry. Although Apple's tablet unit sales increased by 48% year over year, it's still far below the tablet industry average of 75%. Considering the iPad's average selling price was $466.93 last quarter, presumably well above the average selling of the entire industry, it's not surprising. However, it's important to recognize that we're getting continued indication that the premium device market is closer to saturation, which over the long term could put Apple at increased risk of stagnating sales.
Watch out for Mr. Softy
Microsoft (NASDAQ:MSFT) Windows 8 is the newest entrant to the tablet market. During the quarter, IDC believes that about 900,000 Surfaces were shipped during the quarter, which wasn't enough for Microsoft to be part of the top five tablet vendors. However, Microsoft's opportunity is longer term, with the potential to slowly dismantle Apple's iOS position. It comes down to how successfully Microsoft and its partners can influence consumers that buying a tablet with a full-blown (or more powerful) operating system is worth the premium.
Have we reached a tipping point where Android continues to chip away at Apple's share from the low end, and Microsoft begins chipping away from the high end? Could Apple's tablet position become seriously threatened in the years to come? Although Apple remains the premium device manufacturer of today, its market valuation could be indicating that there's trouble ahead for Apple investors. Given Apple's current P/E of 10, is the market anticipating the iKingdom to come crashing down? Or is the market totally underestimating Apple's track record of innovation?
Fool contributor Steve Heller owns shares of Apple and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.