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IDC Brings Bad News for the Tablet Market

By Jamal Carnette, CFA - Sep 14, 2015 at 8:25AM

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IDC reports the entire industry is slowing, but Apple investors shouldn't worry.

If you've been following Apple (AAPL -2.46%) lately, you're probably aware of the company's iPad struggles. For example, in the recently reported third fiscal quarter, Apple reported iPad unit sales were down nearly 18% year over year, marking six consecutive quarters of negative year-on-year unit-sold figures. Revenue has languished, as well, as you can see by the last two years of iPad sales:

Source: Apple's 10Qs. Revenue figures in millions. iPad Revenue as Percentage of Total calculation = [(iPad Revenue)/(iPad Revenue + Total Revenue Ex-iPad)].

As the chart shows, Apple's iPad revenue has decreased during the last four quarters when compared to the previous year's result. As a result of its poor performance, and the tremendous success of Apple's signature iPhone line, the iPad has become less important to Apple's top line. After topping out at nearly 20% of Apple's total haul during the seasonally heavy first quarter of 2014, the iPad's contribution to revenue fell 10.8 percentage points, to 9.1% last quarter.

However, if you're thinking this is a company-specific issue, then you'd be wrong. Although Apple has probably been affected more than most as it essentially dominated the market when the iPad exploded in popularity, only to have market share stolen by low-cost tablet purveyors in a trade-down market, the overall tablet market is struggling now, according to new data from IDC.

VendorQ2 '15 ShipmentsQ2 '15 Market ShareQ2 '14 ShipmentsQ2 '14 Market ShareYoY Growth
Apple 10.9 24.4% 13.3 27.7% -18%
Samsung 7.6 17% 8.6 17.9% -11.6%
Lenovo 2.5 5.6% 2.4 5% 4.2%
Huawei 1.6 3.6% 0.8 1.7% 100%
LG 1.6 3.6% 0.5 1% 220%
Others 20.4 45.6% 22.4 46.7% -8.9%
Total 44.7 100% 48 100% -6.9%

Source: IDC. Percentage figures may slightly differ from IDC's due to rounding. Shipment figures in millions.

As you can see, overall, growth is slowing in the industry. On a year-on-year basis, the tablet market shipped 3.3 million fewer tablets, a 6.9% drop, in the second quarter of 2015 -- from 48 million in 2014, to 44.7 million in the recently completed quarter. And while there were some gains, most notably Huawei and LG, these vendors are small in the context of the overall market.

For the two heavy hitters in the industry, Apple and high-end competitor Samsung, itis important to note that both experienced year-on-year shipment drops more than the overall market. Apple's drop of 18% leads all named vendors, followed next by Samsung, which reported a drop of 11.6%. It seems these two are currently experiencing the double whammy of both the aforementioned trade-down market within an overall slowing market. 

Still, this hasn't slowed Apple down
This hasn't really slowed Apple's growth trajectory. For example, in the recently reported third fiscal quarter, Apple's iPad-related revenue fell 23% on a year-on-year basis, as shown in the chart above, while total revenue grew 33% during that period. The reason for the tremendous gain was mostly due to its tremendous iPhone growth, which registered a gain of 59% during the matching time frame. For a more comprehensive figure, Apple grew its total ex-iPad revenue 42.9% -- from $31.5 billion to $45 billion -- when compared to last year's corresponding quarter.

Many blame the performance of Apple's larger iPhone 6 Plus for slowing iPad sales. Count Apple CEO Tim Cook in that crowd, as well. In the company's second-quarter conference call, Cook admitted that both the iPhone 6 Plus and Mac lines are cannibalizing iPad sales. There's a risk in iPad cannibalization, especially when it's from the iPhone 6 Plus as Apple's iPhone line becomes ever dominant, but Apple does capture that revenue. Long story short, the poor-performing tablet market isn't a huge concern to Apple shareholders.

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