Apple's Aging iPad Portfolio Opens Door for Samsung

Apple's previous stranglehold on the tablet market, in marketshare, has declined dramatically in the last year. Factors include Apple's aging tablet portfolio and customer demand for inexpensive, small screen tablets, according to a Canalys report released on Thursday.

In Q2 of 2012, Apple shipped 17 million iPads. In Q2 2013, the number was 14.6 million. During that time, Samsung raised its tablet shipments from 1.87 million to 7.37 million, a 294 percent increase. Other tablet makers, other than Microsoft, also improved their numbers dramatically, according to the data Canalys published.

Image credit: Canalys

Senior analyst Tim Couling said, "The chasing pack of Samsung, Amazon, Lenovo and Acer each grew annually by over 200 percent, driven by increasing demand for small-screen tablets... Apple’s decline in shipments and share has been partly attributed to its aging portfolio... With branded Android tablets available for less than US$150, the PC market has never been so good for consumers, who are voting with their wallets."

While an aggressive performance from Samsung and others would have been expected, there are many bright spots for Apple. Apple is making serious money with its current portfolio thanks to its gross margins. Apple and Google both appear ready to do combat with a next generation 7-inch "Retina" tablet early in 2014.The iPad still has a serious lead in apps optimized for the iPad's larger display. Apple's customers are more inclined to spend money on serious productivity apps for their iPads, a factor that keeps big money rolling into its developer community.

Finally, while Apple was first out of the blocks with a great, disruptive iPad tablet in 2010, the best quality products can't be expected to maintain dominant marketshare in a cutthroat commodity tablet market that's beginning to mature.

Mr. Couling continued, "While it is true that Apple is losing its stranglehold on the tablet market in terms of volume, it will remain its most profitable vendor for years to come. Apple has already faced a similar battle in the smart phone market, and it now looks increasingly likely that it is readying a [an iPhone] product that can address lower price tiers and high-growth markets in that space. If this is indeed the case, Apple could replicate a similar portfolio play in the tablet market."

We know that the margin models in the 7-inch market are different. For example, Amazon sells its Kindle Fire at, perhaps breakeven, for the sole purpose of generating content revenue. "These products generate little absolute margin for channel partners, vendors or component manufacturers. Content, applications and accessories (especially cases and keyboards) are now even more important to boost margins," Mr. Couling concluded. Accordingly, there are many diverse factors that determine the long terms prospects for success of a tablet. As Microsoft has found out.