Tablets – The long goodnight

The latest releases from Apple are unlikely to reignite growth.

• The tablet market has been the fastest market to go from birth to rapid growth to commoditisation to maturity.
• After a few short years of stunning growth, this segment already looks very mature with just 4% growth expected this year after 44% in 2013A.
• I think that there are three main reasons for this:
  • First. It is the smartphone that is the driver of the digital ecosystem not the tablet. I have long held the view that a tablet enriches Digital Life and skews user behaviour more towards media consumption and gaming but it is not the defining device. Therefore the tablet is a nice accessory to have but it is not a must have. Users would rather have a smartphone.
  • Second: A lot of users who only consume content (browse, email, watch and listen) have purchased a tablet instead of a laptop. For these users this device makes much more sense and this shift has been a trend over the last few years. I see this trend coming to an end and consequently the demand for tablets has slowed.
  • Third: The creation by Samsung of a segment of the market with very large screens has eroded the bottom end of the tablet market.
• The net result is that the market is likely to stagnate from here on and Apple’s refresh of the iPad on Thursday is very unlikely to change that outlook.
• Furthermore, I suspect that Apple will not refresh the iPad Mini as the iPhone 6+ could really cannibalise demand for this product.
• I expect that the new iPad Air to be lighter, thinner, with longer battery life and a faster processor but that’s about it.
• The iPhone 6 is a big deal for Apple as it addresses what has long been a major gripe with earlier devices. Hence I can see strong replacement demand and switching from large screen Android products.
• The new iPad Air is likely to be simply a slightly better version and consequently unlikely to trigger meaningful replacements or ecosystem switching.
• Hence, I am looking for the next two quarters to be almost entirely driven by the iPhone 6 where Apple looks extremely well placed.
• Although the longer term margin issues persist at Apple, the short term is looking healthy and I am happy to be in this one until at least the end of January.