The unrelenting negativity plaguing Apple (AAPL 0.87%) these days continues on unabated. The latest bear food making the rounds today was a forecast out of researcher IDC on where the broader tablet market may be heading over the next few years -- and there's potentially some bad news in store for the iPad maker.
The big picture
As expected, the tablet market is set to post a big surge in units in 2013. IDC has raised its 2013 forecast from 172.4 million units worldwide to 190.9 million units worldwide, based in large part on strong demand for smaller form factors available at lower price points. By the time 2017 rolls around, investors could be looking at a market with annual volumes of 350 million or more.
Remember all the times that Tim Cook predicted that the tablet market would become larger than the PC market? That day may not be too far off, as there were 352 million PCs shipped last year and that market is in a slow and steady decline.
IDC's analyst Jitesh Ubrani said that half of all tablets during the last quarter had 8-inch displays or smaller, and smaller devices should continue to put up healthy growth in the foreseeable future. It's becoming painfully obvious that consumers highly prefer smaller tablets that are better suited for "daily consumption habits."
Get to the point
So how does all of this translate into bad news for Apple? Google (GOOG +1.71%) Android is expected to overtake iOS this year in market share. Talk about a scary headline: "Apple's iPads to fall behind Android tablets this year."
Microsoft (MSFT +2.11%) is also expected to see some market share gains, although the software giant won't come anywhere close to toppling Apple. IDC says that Microsoft's choice to go with two distinct platforms hasn't worked out well thus far. Consumers aren't interested in what Windows RT has to offer, and everyone should have been focusing on Windows 8 from the beginning.
|
Tablet Operating System |
2013 Market Share Forecast |
2017 Market Share Forecast |
|---|---|---|
|
Android |
48.8% |
46% |
|
iOS |
46% |
43.5% |
|
Windows |
2.8% |
7.4% |
|
Windows RT |
1.9% |
2.7% |
Source: IDC (March 2013).
Ever since Apple jump-started the tablet market in 2010, it has enjoyed complete domination as rivals scrambled to catch up. Only when Amazon.com released its 7-inch Kindle Fire did any competitor see success, which was soon followed by Google's own Nexus 7.
Of course, the prospect of giving up the tablet crown to the Android army this year would certainly be a negative development, but here's why it's just silly for shares to be selling off because of it.
Forecasting is just plain hard
The accuracy of IDC's long-term forecasts is easily a point of debate in itself, since they tend to be wildly inaccurate at times. For example, even after the iPad was launched in 2010 -- which was a clear death knell for the netbook -- IDC still expected netbooks to continue growing and reach 42.4 million units in 2014. That prediction has exactly a 0% chance of occurring, since Acer and Asus both officially axed netbooks late last year, and those two companies were the only netbook OEMs left.
You could reasonably argue that Google's Chromebook is the new netbook, but don't expect over 40 million Chromebooks to be shipped next year. That being said, I do trust IDC's historical data more, but forecasting is incredibly hard to do accurately, especially when you're talking about years in advance. A lot can happen in between.
Still, let's go with IDC's figures for a moment.
Oh, no! 34% unit growth!
At 46% market share on 190.9 million units, that's nearly 88 million iPads. That'd still be a very respectable 34% growth in iPad units from the 65.7 million iPads sold last year.
Sources: SEC filings and IDC. Calendar years shown.
At a very conservative average selling price of $400 (actual last quarter was $467), that's over $35 billion in sales -- hardly anything to be upset about for a product category that didn't exist three years ago.
We're still talking about one highly profitable company gobbling up nearly half of the market, while the Android OEMs divvy up most of the rest and eat each other alive. The Android army will inevitably run into slim margins at best and substantial operating losses at worst amid commoditized competition, while also trying to compete with Google itself.
Ultimately, Apple's tablet domination is kind of an anomaly. The company is frequently the underdog in unit share terms, but almost always top dog in profit share terms, and that's what investors are overlooking right now.
