Apple and Samsung Both Have Tablet Problems, But Only One Has a Plan

Source: IDC Worldwide Quarterly Tablet Tracker, July 24, 2014

Source: IDC Worldwide Quarterly Tablet Tracker, July 24, 2014

Will tablet market leaders Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK) succumb to the increasing pressure from smaller tablet vendors? The latest data from market research firm IDC showed that both companies lost market share in the second quarter of 2014 when compared to the year-ago quarter, despite the overall tablet market growing by 11 percent with 49.3 million units shipped.

As seen in the chart above, Apple’s share of the worldwide tablet market dropped to just below 27 percent in the second quarter of this year from the 33 percent share that it held in the same quarter last year. Meanwhile, unit shipments of iPads fell to 13.3 million units from 14.6 million units last year. Samsung also saw its market share shrink in the June quarter when compared to the year-ago quarter. The Korea-based company’s market share slipped to 17.2 percent from 18.8 percent last year, although its unit shipments actually increased slightly to 8.5 million units from 8.4 million units in the year-ago quarter.

“Until recently, Apple, and to a lesser extent Samsung, have been sitting at the top of the market, minimally impacted by the progress from competitors,” noted IDC research analyst Jitesh Ubrani. “Now we are seeing growth amongst the smaller vendors and a levelling of shares across more vendors as the market enters a new phase.”

Samsung’s decrease in market share despite its growth in shipment units may be partially attributable to the explosive growth of relative newcomers to the tablet market, such as China’s Lenovo. Lenovo saw year-over-year growth of 64.7 percent after increasing its unit shipments to 2.4 million from 1.5 million and boosting its market share to 4.9 percent from 3.3 percent.

Source: Thinkstock

Source: Thinkstock

Taiwan-based Asus also sustained an impressive year-over-year growth rate of 13.1 percent by boosting its unit shipments to 2.3 million from 2 million and increasing its market share to 4.6 percent from 4.5 percent. While low-cost tablet maker Acer lost market share, significant growth continued to come from the “Others” category of tablet companies, which primarily consists of similarly low-cost “white box” tablet vendors. Tablet vendors in the “Others” category recorded a year-over-year growth rate of 33.4 percent and took a 44.4 percent share of the worldwide tablet market in the second quarter of 2014.

Besides the growth of smaller tablet vendors, IDC analysts also cited several other tablet market trends that are increasing pressure on Apple and Samsung. “As we indicated last quarter, the market is still being impacted by the rise of large-screen smartphones and longer than anticipated ownership cycles,” stated IDC research director for tablets Jean Philippe Bouchard. “We can also attribute the market deceleration to slow commercial adoption of tablets. Despite this trend, we believe that stronger commercial demand for tablets in the second half of 2014 will help the market grow and that we will see more enterprise-specific offerings, as illustrated by the Apple and IBM (NYSE:IBM) partnership, come to market.”

As noted by Bouchard, Apple recently announced that it was teaming up with IBM to create “a new class of business apps” for mobile devices like the iPad. The partnership with IBM may give Apple a crucial competitive edge in the enterprise segment of the tablet market just as it is expected to grow. Apple CEO Tim Cook expressed his confidence in the enterprise segment of the tablet market during the company’s recent quarterly earnings call.

IBM's Virginia Rometty and Apple's Tim Cook


“We’re very bullish about the future of the tablet market and we’re confident that we can continue to bring significant innovation to this category through hardware, software and services,” said Cook according to a fiscal third quarter earnings call transcript provided by Seeking Alpha. “We think our partnership with IBM, providing a new generation of mobile enterprise applications, designed with iPad’s legendary ease of use and backed by IBM’s cloud services and data analytics will be one such catalyst for future iPad growth.”

When it comes to dealing with the changes in the rapidly evolving tablet market, there are also several other developments that may soon put Apple in a more advantageous position than rival Samsung. As noted by Bouchard, the increasing popularity of large-screen smartphones is believed to be impacting the sale of tablets as consumers realize that tasks that could previously only be performed on a tablet can now be done on a so-called “phablet,” or phone-tablet hybrid. Although Apple’s current iPhone 5S only has a screen size of 4 inches, it has been widely reported that the upcoming iPhone 6 will be available in two larger screen sizes of 4.7 inches and 5.5 inches.

The debut of two new large-screen iPhone models will allow Apple to take advantage of the growing phablet market and offset its declines in the slowing tablet market. In other words, the iPhone 6 will cannibalize Apple’s iPad sales by subsuming its tablet functions, similar to the way that the iPhone cannibalized iPod sales by subsuming its digital media playing functions. Several analysts have predicted that the release of the iPhone 6 models will be Apple’s biggest iPhone launch in history, due to the pent-up consumer demand for a large-screen iPhone.

CIRP iPad models

Source: Consumer Intelligence Research Partners

The large-screen iPhone 6 may also give Apple at least a temporary advantage over Samsung in the smartphone market, where both companies have also lost market share. According to IDC data, Apple’s share of the worldwide smartphone market slipped to 15.5 percent in the first quarter of 2014 from 17.1 percent in the year-ago quarter, while Samsung’s share fell to 30.2 percent from 31.9 percent. However, since Samsung already has multiple large-screen smartphones on the market, it will not be able to match the boost that Apple will soon receive from the release of its larger-screen iPhones.

Finally, as noted by Bouchard, the tablet market may also be suffering from a slowdown due to the “longer than anticipated ownership cycles.” However, a recent study from Consumer Intelligence Research Partners (CIRP) showed that over half, or 52 percent, of Apple’s iPad sales last quarter came from its latest flagship iPad Air model. During the same time period, the iPad mini with Retina display accounted for nearly 20 percent of Apple’s total iPad sales. This suggests that Apple may be less vulnerable to this trend than other tablet makers.

Even though it is not clear how much longer Apple will be able to maintain its lead position in the worldwide tablet market, it appears that it may not matter in the larger scheme of things. It should also be noted that Apple has never made it a priority to dominate a particular product category through market share. Instead, Apple has traditionally focused on maximizing the profit it makes off its premium product sales. On the other hand, Samsung has traditionally focused on offering a wide variety of devices at multiple price points in one category, a strategy that is now making it vulnerable to low-cost competitors in the tablet market. For all these reasons, Apple’s tablet market future currently looks a lot brighter than its biggest rival.

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