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Apple and Google Set Up Latest Tablet Tangle

22 October 2014 in Trading Ideas

It’s certainly not heresy to suggest that the market for tablet PCs has passed Peak Growth, but that doesn’t mean that the major players are willing to cede any market share.

Both Apple and Google released new tablet versions last week, looking to reignite sales in a market that is still expanding, if not at the triple-digit growth rates just seen a couple of years ago.

For Apple, the occasion was the unveiling of the iPad Air 2 and the iPad Mini 3. Both devices have fingerprint sensors, and in the case of the more expensive iPad Air 2, according to the New York Times put it, “it is also faster, has a better camera, and is slimmer than last year’s version.”1

The issue is whether these new products can spark sales for the company – as well as the firms contributing the device’s components. In the second quarter, Apple’s iPad sales slumped 9.3% from a year ago, according to the industry analysis firm IDC, the Times said.

Of course, the entire global market for tablet sales has started to cool. While shipments of tablets exploded from 18 million in 2010 to 207 million last year, they are expected to increase just 11% this year, according to Gartner. Last year, shipments had jumped 55%.

That sort of downturn also hasn’t done much lately for those investing in tablet stocks. The Tablet Takeover motif has fallen 3.9% over the past three months. During that same time, the S&P 500 has decreased 2.9%.

In 2014, the motif has gained 18.4%; the S&P 500 has risen 5.4%.

But even in a slower-growth market, it’s worth remembering that the iPad is still Apple’s second-biggest moneymaker, accounting for about 10% of its profit. That’s no iPhone impact, as the Times noted, but still important – and significant enough that Apple also cut prices on some of its older iPads. The cheapest iPad is now the original iPad Mini, which costs $250, a cut of $100. That move will be important for persuading people who were on the fence about buying an iPad, said Creative Strategies analyst Ben Bajarin.

Google’s counter was the release of the Nexus 9 tablet, which is made by HTC Corp and features an 8.9-inch screen.

In an interesting departure, however, Google’s new products are priced slightly below, or in line with, Apple products. As the Wall Street Journal noted, Google in the past has priced new models well below Apple devices.2

Unlike Apple, Google licenses its operating system to other phone makers. With the new releases, Google aims to compete more with Apple at the premium end of the mobile-device market and help partners churn out cheap handsets for developing markets, the Journal said.

However, many analysts didn’t see cause for Apple to start worrying about Google’s encroachment. Andressen Horowitz analyst Benedict Evans, in a cringe-worthy reality check, pointed out that Nexus devices (especially the phones) have “generally sold in tiny numbers, since they don’t have mainstream distribution and ‘pure Android’ is not a mainstream selling point. Without that these will remain an exercise in vanity publishing.”3

1Brian X. Chen, ” With Tablet Market Maturing, Apple Introduces New iPads,” nytimes.com, Oct. 16, 2014, http://www.nytimes.com/2014/10/17/technology/new-apple-ipads-mac-computers.html?_r=0, (accessed Oct. 20, 2014).

2Alistair Barr and Rolfe Winkler, “Google Unveils Nexus 6 Phone to Rival iPhone 6,” wsj.com, Oct. 15, 2014.

3Benedict Evans newsletter (No. 85), Oct. 19, 2014.

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