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As Tablet Growth Slows, What's Apple Inc.'s Next Move?

By Chris Neiger – Feb 1, 2014 at 10:30AM

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Apple's competitors already have professional tablets, it's time Apple jumps on board too.

The worldwide tablet market had one of its best quarters to date, with 76.9 million tablets shipped in the fourth quarter, up 28% year over year. But despite the uptick, the latest report from International Data Corporation points to a seriously slowing tablet market. But there's opportunity for Apple (AAPL -1.96%) in the shifting tablet trend -- and it involves bringing an iPad Pro to market.

The case for a professional tablet
There's no doubt Apple had a great calendar Q4, with worldwide sales of 26 million iPads, up from 22.9 million year over year. But as IDC pointed out, its year over year growth was "well below the industry average." Part of this is due to markets like the U.S. experiencing tablet saturation.

IDC's tablet research director, Tom Mainelli, wrote in a recent report, "We expect commercial purchases of tablets to continue to accelerate in mature markets, but softness in the consumer segment -- brought about by high penetration rates and increased competition for the consumer dollar -- point to a more challenging environment for tablets in 2014 and beyond."

Within that statement is one of Apple's biggest tablet opportunities: diving further into the commercial market.

There's been a lot of talk recently around a possible iPad Pro coming to market later this year. Back in July, The Wall Street Journal reported that a 12.9-inch tablet was being tested, and other sources since then have said a larger iPad may see a 2014 release. Given how Apple's competitors are already in the space, it seems a likely move for the company.

At the beginning of January, Samsung (NASDAQOTH: SSNLF) introduced Pro versions of its Galaxy Tab and Galaxy Note. The largest of the TabPro and NotePro measure 12.2-inches, include a multipane view to switch between opened apps, and Samsung is selling Bluetooth keyboards and mice for the devices. While Samsung may be testing the professional tablet waters, it's certainly not the first one to wade in.

Microsoft (MSFT -0.04%) has had a professional tablet ever since it launched the Surface Pro tablet early last year. Though the Surface Pro didn't get off to a great start, the latest quarterly earnings report showed that total Surface units and revenue both doubled sequentially. Though Microsoft's Surface Pro is notably smaller than Samsung's pro tablets, it runs full versions of Windows desktop applications, which is likely a selling point for some businesses.

Apple may have hinted at the release of a professional version of the iPad when it introduced its new 64-bit chip late last year. Adding this type of power to a tablet opens up the opportunity for better video and audio editing, 3D graphics, and other apps that use lots of processing power. Apple received a lot of skepticism for releasing a 64-bit chip, but since then chipmaker Qualcomm has unveiled its own 64-bit chip and Samsung said it's working on one as well.

Foolish thoughts
There are plenty of iPad Pro skeptics out there. Earlier this week, Rhoda Alexander, a tablet analyst at IHS told CNET, "What's the argument for it? The usage model is not entirely clear at this point."

But consumer tablet growth is slowing in Apple's largest market, commercial sales are growing, and the company's competitors are already selling or preparing to sell professional-grade tablets. The timing looks right for Apple to enter the market whether or not the segment has been successful in the past. As PC sales continue to dwindle, a new professional tablet segment is likely to take its place. Apple has a history of releasing new products that become the defining devices in a market segment, and the company could certainly do it again with an iPad Pro.

Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. 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.

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