Will Apple’s New iPads Resuscitate the Ailing Tablet Market?

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Apple unveiled its latest iPad models at a media event that kicked off at 1 p.m. Eastern on Thursday. Although Apple’s events that are scheduled in October have traditionally focused on the iPad product line, there was still plenty of speculation in the run-up to the event due to Apple’s typical secrecy. The company accidentally tipped its hand a little early this year when an iOS 8.1 user guide spotted by 9to5Mac in the iBookstore on Wednesday revealed several details about the iPad Air 2 and iPad mini 3, such as the inclusion of the Touch ID fingerprint scanner and Burst photography mode for both devices.

While the debut of two new models ahead of the holiday shopping season will undoubtedly give Apple’s iPad sales a bump, it remains to be seen if the new devices can reverse the ongoing declines seen in the overall tablet market. As recently announced by market research firm Gartner, tablet sales growth has been slowing down and is expected to make up less than 10 percent of all device sales this year. In 2013, tablet sales grew 55 percent from the previous year. This year, tablet sales are only expected to increase by 11 percent.

Gartner researchers cited the longer lifetimes of tablets and the growing popularity of alternative mobile devices as the main reasons behind the decline. “The device market continues to evolve, with the relationship between traditional PCs, different form factor ultramobiles (clamshells, hybrids and tablets) and mobile phones becoming increasingly complex,” said Gartner research director Ranjit Atwal. “Some tablet users are not replacing a tablet with a tablet, they are favoring hybrid or two-in-one devices, increasing its share of the ultramobile premium market to 22 percent in 2014, and 32 percent by 2018.”

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Meanwhile, data from market research firm IDC suggested that Apple is continuing to lose tablet market share to low-cost, Android-based device makers. While Apple maintained its dominance of the worldwide tablet market with a 26.9 percent share in the second quarter of 2014, this was a 9.3 percent decline compared to the year-ago quarter. Although Samsung’s tablet sales were practically stagnant, with just 1.6 percent growth, third-ranked Lenovo saw 64.7 percent year-over-year growth, and fourth-ranked Asus saw 13.1 percent growth. In other words, not only are people buying fewer tablets, they also appear to be buying tablets that are much cheaper than Apple’s premium devices.

However, there are several bright spots for Apple in the overall glum tablet market picture painted by market research firms. First, although tablet market growth has slowed in the past several quarters, worldwide tablet sales are still a significant segment of mobile device sales. Gartner says worldwide tablet sales are expected to hit 229 million units in 2014 and nearly 273 million units in 2015. In other words, despite a slowdown in growth, it doesn’t appear that tablets will be disappearing anytime soon.

Second, Apple’s recently announced partnership with IBM has the potential to reaccelerate iPad sales growth. This potential for growth was recently highlighted by activist investor Carl Icahn in an open letter he wrote to Apple CEO Tim Cook.

“We believe there is still a large growth opportunity for iPad, as you highlighted when you stated that ‘the PC market today is 315 million units’ and ‘despite the iPad’s 76% market share of tablets sold to businesses, the penetration of tablets in businesses is low at 20% and, to put that in some kind of context, if you looked at the penetration of notebooks in business it would be over 60%,’ ” wrote Icahn. “With the recently announced partnership with IBM, which you suggested will ‘change how businesses work,’ we believe iPad will increase its penetration of enterprise.”

Third, it is likely that Apple will continue to benefit from other device sales even as iPad sales continue to fall. Gartner and IDC researchers said one of the reasons that tablet sales are falling is because of the growing popularity of phone-tablet hybrids, or phablets. Since Apple just released its own 4.7-inch iPhone 6 and 5.5-inch iPhone 6 Plus, it is quite likely that Apple is cannibalizing its own iPad sales. This would be similar to how Apple cannibalized its iPod sales when the iPhone began to subsume the device’s media-playing functions. Obviously, this strategy worked out for Apple, since more than 50 percent of its revenue is now derived from its iPhone sales.

Finally, it should be reiterated that the recently unveiled iPad Air 2 and iPad mini 3 will include the Touch ID fingerprint scanner that was introduced on the iPhone 5S. This popular biometric security feature may help entice even more current iPad owners to update to the latest models. Besides the inclusion of Touch ID, the new iPad models also feature a faster A8X processor, an improved Retina display with anti-reflective coating, and a casing that is just 6.1 millimeters (18 percent thinner than the iPad Air).

For all these reasons, there is a good chance that Apple’s latest iPad models will help reinvigorate the overall growth of the tablet market, or at least sales of the iPads. The iPad Air 2 will become available for preorder on Friday. The Wi-Fi version of the 16GB iPad Air 2 costs $499, the 64GB model costs $599, and the 128GB model costs $699. Similarly, the Wi-Fi version of the iPad mini 3 starts at $399 and goes up from there.

Apple also cut the prices for its older iPad models by $100, which means that the entry-level iPad Air can now be purchased for $399. The first-generation iPad mini now starts at $249, which might help Apple claim some of the rapidly growing low-end segment of the tablet market. Either way, it appears that Apple’s tablet crown is secure for the foreseeable future.

Follow Nathanael on Twitter @ArnoldEtan_WSCS

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