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Business News/ Opinion / Online Views/  Love for tablets to gain ground with iPad mini

Love for tablets to gain ground with iPad mini

Global sales of tablets with displays in 7-inch size range are expected to double this year to 34 mn units

The new iPad mini is projected on a screen at an Apple event in San Jose, California. Photo: Robert Galbraith/Reuters (Robert Galbraith/Reuters)Premium
The new iPad mini is projected on a screen at an Apple event in San Jose, California. Photo: Robert Galbraith/Reuters
(Robert Galbraith/Reuters)

The late Steve Jobs, the iconic chieftain of Apple Inc., had expressed reluctance to venture into the 7.x-inch tablet space, given its low margins. Reports say he had a change of heart somewhere in early 2011 because of which the 7.9-inch iPad mini was launched by the new chief executive officer Tim Cook on Tuesday.

Business compulsions, of course, have been more compelling in this case, following competition from 7.x-inch tablets from Amazon Inc. (Kindle) and Google Inc. (Nexus 7) that have made significant inroads in the low-end tablet market. Since its launch in 2010, Apple has sold 100 million iPads, and if it wants to keep up the momentum, a mini-iPad makes a lot of sense.

In April, research firm Gartner Inc. forecast worldwide media tablet sales to end users will touch 118.9 million units in 2012, a 98% increase from 2011 sales of 60 million units. It said Apple’s iOS continues to be the dominant media tablet OS, as it is projected to account for 61.4% of worldwide media tablet sales to end users in 2012.

The arrival of the smaller iPad will turbocharge the market for 7-inch tablets, helping the market to approximately double in 2012 and 2013, according to a 23 October report by research firm IHS (iSuppli Display Materials & Systems Service). They are expected to account for 28% of all tablets in 2012, up from 24% in 2011. In 2013, the 7.x-inch share will rise to 33%, said the report.

Global sales of tablets with displays in the 7-inch size range are expected to double this year to 34 million units, up from 17 million in 2011. Sales will nearly double again in 2013, rising 96% to 67 million, the report said.

Apple’s tablet competitors that are using the Android operating system until now have gravitated to the 7.x-inch size as a way to find a competitive niche compared to the bigger 9.7-inch iPad. With the anticipated arrival of the smaller iPad, these companies are increasingly looking at the 8.x-inch and larger categories as they seek to find new avenues of differentiation compared to Apple, the report said.

By contrast, new tablets based on Microsoft Corp.’s Windows RT and Windows 8 operating systems are likely to focus on products with 10-inch-and-larger displays, although there may be some offerings with displays as small as 8.x-inch, the report added.

But will users lap up the mini-iPad at $329?

This may not be a pertinent question for Apple fans. But Android and other operating system (OS) users may find a peek into the costs an educative exercise.

A preliminary analysis of the component cost of the Samsung Galaxy Note 10.1, according to IHS, reveals the HSPA+ version of the media tablet carries a bill of materials of $283, which rises to $293 if basic manufacturing costs are added (excluding software, licensing, royalties or other expenditures), but sells for around $640 globally. Now that’s a good margin.

IHS also noted that at their original sales prices and bill of materials, the Google Nexus 7 and the Amazon Kindle Fire generated little or no hardware profit—instead trying to make money using more complex business models involving online services.

The entry-level 8GB version of Google’s new Nexus 7 media tablet carries a bill of materials of $151.75, according to preliminary findings from the IHS iSuppli Teardown Analysis Service. When manufacturing expenses are added, the cost increases to $159.25. The high-end model with 16GBytes of NAND flash memory has a $159.25 bill of materials, for a total cost of $166.75.

When additional costs are considered, IHS estimates that Google will at least break even on sales of the 8GB model, priced at $199—and will make a modest profit on the 16GB version, which is priced at $249.

Like Apple, Google has realized it can boost margins by offering more memory at a more profitable price point, noted IHS.

IHS also estimates the bill of materials of the Kindle Fire has fallen to $133.80, down from $191.65 at its introduction in November, due to dramatic reductions in component pricing. These considerable cost reductions provide a breather for Amazon in terms of the subsidy it initially paid to penetrate the market.

This implies that Apple will have to do a lot of work if it wants the mini iPad to chip away at the sales of Nexus 7 and Kindle Fire users. Instead, the mini iPad may eat into the 10.x-inch iPad sales. Apple, of course, will be upgrading its iPads with faster processors, better display, etc. (as it has already done by unveiling the bigger fourth-generation iPad with the A6X processor on Tuesday), much to the dismay of existing users who may cry foul that their old accessories don’t work with the new iPads.

But that’s the way technology upgrades work. Don’t they?

Globally, Apple is expected to continue to be the market leader in the media tablet segment for some time to come, and with the mini iPad, it is not only expected to increase its base but also entice more users into the tablet fold, much to the detriment of the desktop-based PC form factor.

Tablet form factors have become very popular globally and in India too, giving the desk-based personal computer (PC) form factor quite a scare.

Sales of tablet computers in India are gathering pace riding demand mainly for the several low-cost devices launched by local firms, led by Micromax Informatics Ltd. Of the 1.4 million tablet computers despatched by vendors in India since October 2010, when the devices were launched in the country, nearly 40%, or 550,000 units, were shipped between April and June this year, CyberMedia Research said in a report released on 8 October.

Gurgaon-based Micromax topped shipments with an 18.4% share in the June quarter, followed by South Korea’s Samsung Electronics Co. Ltd with 13.3% and Apple Inc. of the US with 12.3%, the report said. To be sure, shipments need not translate into actual sales, which could be much lower. In the case of mobile devices, actual sales could even be 60% lower than shipments.

Desk-based PCs may not die anytime soon--at least not in India. But more and more work is getting done on tablets, phablets (combining the phone and tablet form factor) and smartphones. Besides, till now, most experts argued that PCs are for content creation while tablets are for entertainment, surfing, videos, etc. But even this is changing rapidly with convertible devices that act both as PCs and tablets, and which is going to threaten the desk-based PC form factor further.

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Published: 24 Oct 2012, 08:14 PM IST
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