Apple iPad widely expected to lead tablet disruption of PCs in 2011
Reports from a variety of analysts predict a huge swell in tablet computer sales next year ranging from 35 to 100 million units in total, with Apple's iPad accounting for the largest number sold by far.
A report by Barrons compared the predictions of analysts from Citigroup, FBR Capital Markets and Gartner; reports from each differ widely on the number of tablets that will be sold next year, but all agree Apple will lead the pack.
Citigroup's estimates say 35 million tablet devices will ship in 2011, with Apple's iPad representing three quarters of the total (around 26 million), giving it a share of the market similar to the company's dominant position in music players with the iPod.
Citigroup sees 400 million PCs being sold next year, but estimates that growth in tablets will come at the expense of 11 million PCs (which would have been sold had the iPad not shaken up the market). That's enough to have prompted the group to reduce its expected growth of the PC market from 12 percent to just 9 percent over this year's sales.
Craig Berger of FBR Capital Markets says Apple will sell 40 million iPads next year, and that other makers will mange to sell another 30 million. He indicates that every 2.5 tablets sold will result in a lost PC sale, or a total of 28 million fewer conventional PCs.
While often missing the mark on its reports, DigiTimes has reported Apple is gearing up manufacturing to reach annual production of 70 million iPads, and expected other makers to contribute an additional 30 million to tablet sales.
Gartner noted that the last quarter of PC sales was "the weakest in several years," but does not include iPads in its definition of PCs sold.
Weathering the iPad storm
Apple's sales of iPads are cutting into PC makers' profit margins, including Apple's own. Of course, Apple also enjoys the fattest profit margins of PC makers, thanks to its ability to attract buyers to machines with a higher average sales price.
Company executives began warning about more aggressive prices on upcoming products, a ruthless strategy intended to keep the iPad from repeating the mistake of isolating a leading product into an upscale market niche as it did with the Macintosh in the late 80s.
By leveraging the vast economies of scale inherent in building tens of millions of iPods and iPhones, Apple can sell the nearly 10 inch iPad for the same price or less than competitors can afford to sell their much smaller 7 inch tablets, which Apple insists can't deliver a differentiated experience over existing smartphone-class devices the way that the iPad can.
While Apple's successful growth in entering the existing smartphone business has been duplicated and in some cases exceeded in sales volumes by Android, Googles operating system hasn't produced competitive music players or tablets, both markets that were largely defined by Apple with the iPod and iPad and, in the case of the iPod, a market Apple maintained a dominant position in for years even under the onslaught of supposed "iPod-killers" promised by Creative, Sony, Microsoft, and others.
iPad contenders
Meanwhile, rival PC makers are left to use Microsoft's Windows 7, which hasn't done well in the Tablet PC/Slate PC market before; or adopt Google's current Android OS, which the company itself doesn't yet recommend for tablet-sized devices but is already being sold on devices such as the Galaxy Tab; or use Google's still unfinished Chrome OS, which delivers a browser-centric experience.
Other companies, including RIM and HP, have decided to build their own iOS competitors, with RIM embarking on a new tablet environment for its PlayBook that pairs the QNX kernel with Adobe's AIR (a derivative of Flash) to provide a development environment for apps and the overall system.
HP's acquisition of Palm and its WebOS promises to bring another option to the tablet market sometime next year, sporting the web-based environment that didn't help Palm remain self sufficient in its efforts to rebuild its smartphone business with the Palm Pre. HP's previous attempt to deliver a Slate PC running Windows 7 failed miserably.
A report by Barrons compared the predictions of analysts from Citigroup, FBR Capital Markets and Gartner; reports from each differ widely on the number of tablets that will be sold next year, but all agree Apple will lead the pack.
Citigroup's estimates say 35 million tablet devices will ship in 2011, with Apple's iPad representing three quarters of the total (around 26 million), giving it a share of the market similar to the company's dominant position in music players with the iPod.
Citigroup sees 400 million PCs being sold next year, but estimates that growth in tablets will come at the expense of 11 million PCs (which would have been sold had the iPad not shaken up the market). That's enough to have prompted the group to reduce its expected growth of the PC market from 12 percent to just 9 percent over this year's sales.
Craig Berger of FBR Capital Markets says Apple will sell 40 million iPads next year, and that other makers will mange to sell another 30 million. He indicates that every 2.5 tablets sold will result in a lost PC sale, or a total of 28 million fewer conventional PCs.
While often missing the mark on its reports, DigiTimes has reported Apple is gearing up manufacturing to reach annual production of 70 million iPads, and expected other makers to contribute an additional 30 million to tablet sales.
Gartner noted that the last quarter of PC sales was "the weakest in several years," but does not include iPads in its definition of PCs sold.
Weathering the iPad storm
Apple's sales of iPads are cutting into PC makers' profit margins, including Apple's own. Of course, Apple also enjoys the fattest profit margins of PC makers, thanks to its ability to attract buyers to machines with a higher average sales price.
Company executives began warning about more aggressive prices on upcoming products, a ruthless strategy intended to keep the iPad from repeating the mistake of isolating a leading product into an upscale market niche as it did with the Macintosh in the late 80s.
By leveraging the vast economies of scale inherent in building tens of millions of iPods and iPhones, Apple can sell the nearly 10 inch iPad for the same price or less than competitors can afford to sell their much smaller 7 inch tablets, which Apple insists can't deliver a differentiated experience over existing smartphone-class devices the way that the iPad can.
While Apple's successful growth in entering the existing smartphone business has been duplicated and in some cases exceeded in sales volumes by Android, Googles operating system hasn't produced competitive music players or tablets, both markets that were largely defined by Apple with the iPod and iPad and, in the case of the iPod, a market Apple maintained a dominant position in for years even under the onslaught of supposed "iPod-killers" promised by Creative, Sony, Microsoft, and others.
iPad contenders
Meanwhile, rival PC makers are left to use Microsoft's Windows 7, which hasn't done well in the Tablet PC/Slate PC market before; or adopt Google's current Android OS, which the company itself doesn't yet recommend for tablet-sized devices but is already being sold on devices such as the Galaxy Tab; or use Google's still unfinished Chrome OS, which delivers a browser-centric experience.
Other companies, including RIM and HP, have decided to build their own iOS competitors, with RIM embarking on a new tablet environment for its PlayBook that pairs the QNX kernel with Adobe's AIR (a derivative of Flash) to provide a development environment for apps and the overall system.
HP's acquisition of Palm and its WebOS promises to bring another option to the tablet market sometime next year, sporting the web-based environment that didn't help Palm remain self sufficient in its efforts to rebuild its smartphone business with the Palm Pre. HP's previous attempt to deliver a Slate PC running Windows 7 failed miserably.
Comments
Company executives began warning about more aggressive prices on upcoming products, a ruthless strategy intended to keep the iPad from repeating the mistake of isolating a leading product into an upscale market niche as it did with the Macintosh in the late 80s.
Right strategy, wrong rationale. The Mac was never a leading product and was released into a market already dominated by IBM-PC clones. This wasn't a mistake, it was just the way the market was preconfigured. For the iPad, Apple has a clear field. The company is signaling a similar strategy to the one they've taken with the iPhone. Apple will challenge competitors or potential competitors on price, and will not provide them with a price overhang to squeeze under.
As to the competitors and their seven inch devices, I see nothing to indicate that they can't compete on price. If anything they are offering product with more features. Besides there is a thought in the industry that Apple screwed up in two respects. One is the issue of aspect ratio and the other is that iPad is to damn big. The only way to know for sure is to offer up the smaller wide screen devices. Frankly I think apple will be forced to offer a sub seven inch iPad/iPod to remain competitive.
Anybody that wants to argue the point should pick up a kindle and experience the device a bit. Put iOS on a similarly sized device and watch students and others adopt the machine in a mad rush.
By the way when I referenced a sub 7" iPad/iPod above it was due to the idea that there is a signifact difference in how the two device families are used. A sub 7" could be the video iPod that many of us would like to have.
As for the contenders; Apple is more open to aggressive competition than many want to admit. I still see Android as a loosing proposition with Blackberries approach possibly the only solid play coming. Even then RIM has a long was to go and needs a native toolkit ASAP as Flash is a huge error. Like it or not Apple needs to a more feature complete iPad. That is expected in iPad 2 but the exact composition of the additions to iPad 2 are not known yet so we don't know if the platform will be able to keep share up against the competition.
I'm not sure why this idea keeps cropping up, that is that Apples profit margin is thin with the iPad. Everything I've seen seems to indicate a margin larger than what is seen on Apples PC hardware.
I didn't see anything in the article to suggest that margins on the iPad are thin, only that Apple can use economies of scale to be as aggressive on price as they need to be.
The 7" Galaxy Tab is not a very good size, having used one it's too big for a pocket so you need a bag, then you may as well get the superior iPad.
My iPhone 4 is in for repair, so I've been using a few Android phones an underwhelming and annoying experience, it's like the difference between Coca Cola and a no name brand of Cola, sort of the same but different, I want my "real thing" back.
By the way when I referenced a sub 7" iPad/iPod above it was due to the idea that there is a signifact difference in how the two device families are used. A sub 7" could be the video iPod that many of us would like to have.
Competitors will have to sell their tablets at a loss in order to move units. And even then, because of the feature disparity, it will be an arduous task.
I'm not sure why this idea keeps cropping up, that is that Apples profit margin is thin with the iPad. Everything I've seen seems to indicate a margin larger than what is seen on Apples PC hardware.
As to the competitors and their seven inch devices, I see nothing to indicate that they can't compete on price.
Everything I've seen points to Apple controlling flash memory/screen prices to the extent that no one else can get their prices down to Apple's level. Between storage and RAM, if Apple controls the price, they control the tablet market.
The only other option is to include spinning hard drives, which will make a tablet slow and last about 2 hours.
7 inch device, though, would be nice.
I didn't see anything in the article to suggest that margins on the iPad are thin, only that Apple can use economies of scale to be as aggressive on price as they need to be.
Weathering the iPad storm
Apple's sales of iPads are cutting into PC makers' profit margins, including Apple's own. Of course, Apple also enjoys the fattest profit margins of PC makers, thanks to its ability to attract buyers to machines with a higher average sales price.
Company executives began warning about more aggressive prices on upcoming products, a ruthless strategy intended to keep the iPad from repeating the mistake of isolating a leading product into an upscale market niche as it did with the Macintosh in the late 80s.
I think that the article clearly indicates that the margins on the iPad are, if not thin, thinner than on other Apple devices.
I also seem to remember that there was a more pessimistic profit margin forecast from Apple at the last quarterly report. IIRC, most people thought (or maybe Apple said it directly) that this was a result of projected iPad sales...
As to the competitors and their seven inch devices, I see nothing to indicate that they can't compete on price. If anything they are offering product with more features.
Much smaller screen size plus "features" does not equal competing on price.
Besides there is a thought in the industry that Apple screwed up in two respects. One is the issue of aspect ratio and the other is that iPad is to damn big.
"Thought in the industry"? Not sure what that means. Certainly, Apple's competitors would like us to believe that smaller devices that cost as much as the iPad aren't an effort to match prices by cutting costs, and that somehow a 7" device for the same money is "better." Which must be why smaller screened notebooks, TVs and monitors always cost as much or more as their larger brethren, on account of the betterness.
The only way to know for sure is to offer up the smaller wide screen devices. Frankly I think apple will be forced to offer a sub seven inch iPad/iPod to remain competitive.
Yes, we will see. My thought is that the competition will be forced to offer 9" devices for what they'e charging now, to remain competitive with Apple.
Anybody that wants to argue the point should pick up a kindle and experience the device a bit. Put iOS on a similarly sized device and watch students and others adopt the machine in a mad rush.
It appears the iPad is being adopted in a mad rush, so....
By the way when I referenced a sub 7" iPad/iPod above it was due to the idea that there is a signifact difference in how the two device families are used. A sub 7" could be the video iPod that many of us would like to have.
As has been noted, you seem have forgotten about the iPod Touch. The question for Apple is whether or not there is enough differentiation between Touch size and iPad size to make it worth if for them to offer a 6"-7" model. My guess is that their calculation was that once you're past the pocketable Touch you might as well offer a decently sized screen for real work. Exactly how much better is a 7" screen over the 4.5" Android phones already on the market? Some, obviously, but enough to bother with an extra device to carry around?
As for the contenders; Apple is more open to aggressive competition than many want to admit. I still see Android as a loosing proposition with Blackberries approach possibly the only solid play coming. Even then RIM has a long was to go and needs a native toolkit ASAP as Flash is a huge error. Like it or not Apple needs to a more feature complete iPad. That is expected in iPad 2 but the exact composition of the additions to iPad 2 are not known yet so we don't know if the platform will be able to keep share up against the competition.
I agree that it would be nice if Apple took an aggressive pace with adding functionality to the iPad and iOS. Getting the AirPrint and AirPlay frameworks fleshed out, extending the capacities of the productivity software, improving the hardware, etc. could go a long way towards keeping the iPad best in class and top selling even in the fact of cheap Android models.
After the novelty of the "tablet" form factor wears off, it will come down to functionality. If Android devices are largely email, web and media devices and the iPad/iOS family are capable of replacing your computer, then we're actually talking about different product categories.
I think that the article clearly indicates that the margins on the iPad are, if not thin, thinner than on other Apple devices.
I also seem to remember that there was a more pessimistic profit margin forecast from Apple at the last quarterly report. IIRC, most people thought (or maybe Apple said it directly) that this was a result of projected iPad sales...
Apple did forecast slightly lower margins for the coming quarter, but they're always very conservative with their public numbers. I see where you read this in, but it's really all speculation at this point as to whether the iPad's margins are lower than what Apple generally gets for their other products, since Apple only announces gross margins for their entire business. The take-away point I think is that Apple is prepared to be aggressive in pricing the iPad, which may result in lower margins in the future.
The only way to know for sure is to offer up the smaller wide screen devices. Frankly I think apple will be forced to offer a sub seven inch iPad/iPod to remain competitive.
I'm not sure why people get so defensive about Apple offering a 7" version of the iPad. I know the screen resolution becomes a problem (unless you pack the same pixels in as the full size iPad, but that would preclude a full size retina display).
The way I see it, the iPhone not being on Verizon created an opportunity for Android to not only establish a foothold, but to get some unchallenged momentum in the smartphone space. Leaving the 7" tablet market to RIM and Android only gives them a chance to get set up with no Apple competition.
They have, iPod Touch and iPhone.
The 7" Galaxy Tab is not a very good size, having used one it's too big for a pocket so you need a bag, then you may as well get the superior iPad.
My iPhone 4 is in for repair, so I've been using a few Android phones an underwhelming and annoying experience, it's like the difference between Coca Cola and a no name brand of Cola, sort of the same but different, I want my "real thing" back.
Also, lets talk about how the hell will Samsung be able to compete with Apple in updating their systems OS-wise. Sammy doesn't control the Android OS. So Apple can drop some incredible features down the line into iOS while Sammy sits and looks like a freaking sheep in the tractor trailer headlights.
Sorry for sounding like a fanboy but I call it like I see it.
As to the competitors and their seven inch devices, I see nothing to indicate that they can't compete on price. If anything they are offering product with more features. Besides there is a thought in the industry that Apple screwed up in two respects. One is the issue of aspect ratio and the other is that iPad is to damn big. The only way to know for sure is to offer up the smaller wide screen devices. Frankly I think apple will be forced to offer a sub seven inch iPad/iPod to remain competitive.
Anybody that wants to argue the point should pick up a kindle and experience the device a bit. Put iOS on a similarly sized device and watch students and others adopt the machine in a mad rush.
By the way when I referenced a sub 7" iPad/iPod above it was due to the idea that there is a signifact difference in how the two device families are used. A sub 7" could be the video iPod that many of us would like to have.
I don't think, given the iPad's success, the size can be regarded as Apple screwing up!! But I do agree that the competition will demonstrate that the 7" form factor is viable, and if Apple wants to hold overall market share in the segment, it will have to offer a device in this class. Jobs talked nonsense about fingers sanding down - it just needs software optimising for the form factor.
I ebay'd my iPad. But I'd buy a 7" one.
I think that the article clearly indicates that the margins on the iPad are, if not thin, thinner than on other Apple devices.
I also seem to remember that there was a more pessimistic profit margin forecast from Apple at the last quarterly report. IIRC, most people thought (or maybe Apple said it directly) that this was a result of projected iPad sales...
Profit margins on 3G iPads must be significantly higher, when you consider the increase in selling price for a few $ components.
Apple did forecast slightly lower margins for the coming quarter, but they're always very conservative with their public numbers. I see where you read this in, but it's really all speculation at this point as to whether the iPad's margins are lower than what Apple generally gets for their other products, since Apple only announces gross margins for their entire business. The take-away point I think is that Apple is prepared to be aggressive in pricing the iPad, which may result in lower margins in the future.
I agree. we have no way of knowing for sure and Apple has not (and will not) provide data to prove or disprove the point. If the profit margins do continue to drop as iPad sales increase we may infer it, but we won't really know.
(But you have to admit, the article did indicate that iPads were putting downward pressure on margins whether they can prove it or not.)
One reason other companies are settling on 7 " is because Apple has cornered the supply on the size used in the iPad and Apple has bought so much product that others can't buy enough to get the same discount Apple gets. Further, Apple pays less on some of the parts like the processor because of it being it's own design.
I really do not think Apple is sacrificing to much on Margins. It typically gets about 30 to 35 percent profit. It's competitors are getting around 10 percent. Even if Apple sacrificed it's margins down to 20 to 25 percent that still far out performs the competition.
Further, Apple is adaptable. If 7 inch proves compelling, which I myself doubt, Apple has the flexibility to adopt new sizes.
Apple's margins on the iPad must be tight since their competitors clearly cannot compete. It's obvious nobody else can deliver a device with a capacitive touchscreen over 7 inches for a similar price (if at all). It's a testament to the irrationality of Apple's detractors that some have convinced themselves the diminutive touchscreens on competing tablets are by choice rather than necessity.
Reports from a variety of analysts predict a huge swell in tablet computer sales next year ranging from 35 to 100 million units in total, with Apple's iPad accounting for the largest number sold by far....
Since Apple is known to be producing approximately 40 million iPads next year, it would seem the middle estimate is the closest unless demand for the new model exceeds expectations again. Apple rarely builds more units than it can comfortably sell.
Re: the seven inch device, I too think this would be a better size for me in that I could ditch the iPhone and the iPad I currently have, for one single, blended device. However, it isn't happening for 2011 and seems more like a mature market product than something coming out any time soon.
The reason for a 7" iPad is that it's the best "serious" form factor for those that want a device more akin to a portable computer than a portable TV screen or book. Right now, Mom and Pop and all the kiddies are amazed at the magical new iPad. It will take a couple of years before it becomes a "real" computer that people just want to use and don't get all misty-eyed about beforehand. That's when you will see Apple come out with something in the 7" range. A sort of "iPhone Pro" perhaps.
I'm not sure why people get so defensive about Apple offering a 7" version of the iPad. I know the screen resolution becomes a problem (unless you pack the same pixels in as the full size iPad, but that would preclude a full size retina display).
The way I see it, the iPhone not being on Verizon created an opportunity for Android to not only establish a foothold, but to get some unchallenged momentum in the smartphone space. Leaving the 7" tablet market to RIM and Android only gives them a chance to get set up with no Apple competition.
Except nobody has to sign contracts with 7" tablets that would discourage them from switching over to a different tablet size.
The form factor of tablets does not mirror the carrier system for cellphones.
Since Apple is known to be producing approximately 40 million iPads next year, it would seem the middle estimate is the closest unless demand for the new model exceeds expectations again. Apple rarely builds more units than it can comfortably sell.
Re: the seven inch device, I too think this would be a better size for me in that I could ditch the iPhone and the iPad I currently have, for one single, blended device. However, it isn't happening for 2011 and seems more like a mature market product than something coming out any time soon.
The reason for a 7" iPad is that it's the best "serious" form factor for those that want a device more akin to a portable computer than a portable TV screen or book. Right now, Mom and Pop and all the kiddies are amazed at the magical new iPad. It will take a couple of years before it becomes a "real" computer that people just want to use and don't get all misty-eyed about beforehand. That's when you will see Apple come out with something in the 7" range. A sort of "iPhone Pro" perhaps.
It's a new fad to people. They think its a kindle with a web browser. They think it's simple to make a seven inch that can do the same things as the iPad. Eventually they'll see it cant
Right strategy, wrong rationale. The Mac was never a leading product and was released into a market already dominated by IBM-PC clones. This wasn't a mistake, it was just the way the market was preconfigured. For the iPad, Apple has a clear field. The company is signaling a similar strategy to the one they've taken with the iPhone. Apple will challenge competitors or potential competitors on price, and will not provide them with a price overhang to squeeze under.
I agree with this. I would add that Macs are competitively priced with other PCs within the same direct categories and that the iPhone is very profitable for Apple whilst being competitively priced because of many factors that revolve from economy of scale that other vendors simply can?t compete with.