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TMCNet:  Tablet shipments suggest a crossing point with PCs might not be far off

[February 01, 2013]

Tablet shipments suggest a crossing point with PCs might not be far off

(Guardian Web Via Acquire Media NewsEdge) Here's a graph to worry Microsoft - and hearten Apple and Google. It shows smartphone, PC and tablet shipments, going back to the fourth quarter of 2009 - when Windows 7 launched. At that time, smartphones were only really used in the bigger developed countries; shipments (which aren't the same as end-user sales during a specific time period, but generally work out that way over a few quarters) were just about 55m, while PC shipments were riding high, at 90m.


Tablets, of course, hadn't been (re)invented. There were a few, in specialist areas, running Windows; but generally the figures were tiny, and subsumed into PC shipments, at around 1m per year.

Then in January 2010, Apple came along and upset things. The iPad went on sale in the second quarter of 2010 and sold 3.27m - eclipsing the tablet market that Microsoft thought it had created all those years ago. Other companies quickly caught on to the possibilities (particularly Samsung, which had the manufacturing capability for large touch screens - because it was making them for Apple), especially when they realised that they could use the free Android OS (rather than the pricey Windows OS) to power them.

Smartphones, meanwhile, passed PC shipments in the fourth (Christmas) quarter of 2010, and haven't looked back; now quarterly figures are more than double those of PCs, and there's no sign that trend will let up. The smartphone is the ubiquitous computing device for this part of the 21st century.

The story for PCs since then hasn't been stellar, though it hasn't been disastrous either; they have plugged along, though the sales in the fourth quarter of 2011 - 95.5m - seem to have been the high water mark. The release of Windows 8 in October 2012 didn't goose sales as expected; instead they dipped in the quarter, and as the first quarter of a calendar year doesn't see much growth (and certainly not sequential growth), they're likely to sit somewhere below the 90m level in this quarter.

Tablet takeoff Tablets, though - those have taken off. IDC's figures released on Thursday show a tablet market that is in overdrive. And the most worrying thing for Microsoft is that the part of the market which seems to be growing fastest is the one where it has no presence: in 7in devices.

The data also says that Apple's share of shipments has fallen below 50% - and given that it's at 43.6%, and with shipments of Microsoft's Surface RT tablet estimated at "just shy" of 900,000, or 1.7% of the total market, that means that Android tablets now make up the majority of shipments (even if IDC doesn't specify that).

Even there, though, there's some finessing to be done: Amazon and Barnes & Noble, respectively offering the Kindle Fire and Nook, together shifted an estimated 7m units, or 13.4%. They are "forked" versions of Android, from which Google doesn't get any direct benefit (apart from the general one of people being online - which is always a benefit for Google).

A notable presence there is Samsung, which grew its tablet shipments nearly fourfold to 7.9m. The South Korean company has been aggressively pushing its tablets, with promotions in a number of UK stores, for example, where signing up for a contract with a Samsung Galaxy S3 gets you a free tablet too. If you needed any proof that it's going aggressively after market share, with a view to equalling - and surpassing - Apple in tablet shipments, look no further.

But what story does this data tell more generally Tom Mainelli, IDC's research director for tablets, says with the results that "The record-breaking quarter [for tablets] stands in stark contrast to the PC market, which saw shipments decline during the quarter for the first time in more than five years." Small is big It certainly does. And the rise of the 7in tablet - in the form of the Kindle Fire, Nook, Nexus 7, Samsung Galaxy Tab 7, and iPad mini - points to an evolution of the market too, towards smaller, lighter devices that you can carry and use anywhere. It's a general principle in the technology field that small and light (even if slightly less functional) beats bigger and heavier, even if more functional. That's part of why we use smartphones on the go rather than 3G-connected PCs.

Looking at the IDC statistics, the total of Amazon, Barnes & Noble and Asus's shipments make 10.1m units - and it's a fairly safe bet that almost all of those are 7in devices. Nobody knows how many iPad minis Apple sold, but if only a third of the 22.9m figure were, then 7in tablets made up at least 17m units of the 52.5m, or nearly a third.

This creates two problems for Microsoft. First, it hasn't yet got any traction in the tablet market: the Surface RT has made no splash at all with buyers. Many OEM PC companies have indicated that they'll either hold off on producing RT devices, or said that they won't start selling them in the US until later this year.

The second problem is that Microsoft has absolutely nothing to offer the market in the 7in space. Windows 8 is optimised for screens with a minimum size of 11in diagonally; the touch targets don't downscale effectively to a 7in screen. Furthermore, at that level any Windows device would be competing with phone OSs - iOS and Android.

But Microsoft's business model is to charge the biggest licence fee it can manage in a market. It wouldn't let OEMs build 10in tablets running Windows Phone, because it wanted the larger licence revenue from Windows (or Windows RT).

Too big to think small When it comes to 7in tablets, Microsoft might want to call it a "tablet" - and hence deserving of a Windows licence. But OEMs would want to put Windows Phone on it, because the licence is cheaper, even if it might not be the ideal OS. (Windows 8's Metro interface would certainly make more sense on a 7in tablet, but the economics would be murderous for OEMs up against Android at the low end and Apple at the high end: there would be no profit margin.) And that's before we start wondering when, precisely, tablets might start outselling PCs. Don't laugh - there was a time when to suggest that about smartphones would have been ludicrous too. It's telling that IDC has been issuing regular forecasts for tablet shipments and PC shipments since mid-2011, and the tablet numbers keep going up with each successive forecast (the adjacent blocks in the graphic) while the total PC numbers forecast keep going down.

GRAPHIC So that crossing point for tablets might come sooner than you think. NPD DisplaySearch forecasts that they will overtake notebook shipments this year. And with desktop sales shrinking, that wouldn't leave a large gap to overhaul the whole PC space.

IDC's advice Ryan Reith, its program manager, Mobile Device Trackers, says with the press release: "We believe that Microsoft and its partners need to quickly adjust to the market realities of smaller screens and lower prices. In the long run, consumers may grow to believe that high-end computing tablets with desktop operating systems are worth a higher premium than other tablets, but until then ASPs [average selling prices] on Windows 8 and Windows RT devices need to come down to drive higher volumes." Sensible words. But is Microsoft listening, and more than that, can it move quickly enough to embrace that change (c) 2013 Guardian Newspapers Limited.

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