By Daisuke Wakabayashi and Shira Ovide
When the late Steve Jobs introduced the first iPad in 2010, he
acknowledged that many people already had a smartphone and a laptop
computer. "Is there room for a third category of device in the
middle?" asked the then Apple Inc. chief executive.
His company initially answered that question with an emphatic
yes, spurring the creation of one of the fastest-growing product
categories in the history of high tech. But that old question
suddenly has become timely again.
Apple said on Tuesday that unit sales of the iPad--the
best-selling tablet on the market--fell for a second straight
quarter. IPad revenue has fallen in four of the last five quarters,
and recent evidence points to slowing sales for imitators that
rushed their own tablets to market.
The slump suggests tablets are feeling a squeeze. As smartphone
screens grow larger and laptop computers grow thinner and lighter,
tablet computers are starting to look less appealing.
They aren't as essential to many users as smartphones, nor are
they as portable. They don't handle many work chores as well as
laptop or desktop PCs. And while many people watch videos or read
articles on a tablet, it isn't quite a must-have device for many
consumers.
In most cases now, tablets are "not a necessity but a want,"
said Ben Thompson, who writes the technology analysis blog
Stratechery.
Many of the people who want tablets already have them, industry
executives and analysts say. When it comes time to replace them,
tablet owners now often consider spending that money instead on new
designs of smartphones or laptops.
"Like any new category there is going to be saturation," said
Rob DeLine, a director at chip maker Intel Corp. who specializes in
laptops and related devices. "There are more choices for computing
that are competing for consumers' share of mind and share of
wallet," he added.
The competition is evident inside Apple's own product line. In
the third quarter ended in June, iPhone sales rose 13%, Mac sales
increased 18% while the iPad declined 9%.
But signs of a slowdown began emerging earlier. In May, research
firm IDC lowered its outlook for global tablet shipments by 5.9%,
citing sluggish demand so far this year and "additional market
challenges" that it foresees for the rest of the year. The firm
projects tablet shipments to rise 12% this year, a far cry from 52%
growth of a year before.
Samsung Electronics Co., the No. 2 tablet maker, ratcheted back
its expectations for tablet sales in recent weeks amid signs of
lackluster demand. Earlier this month, The South Korean company
said sluggish sales of those devices would contribute to an
expected profit decline of about 24% from a year earlier, citing
consumers' reluctance to upgrade their tablets as often as they buy
new smartphones.
Within tablets, some of the uncertainty surrounds those offered
in screen sizes between seven- and eight-inches diagonal. Those
seen to have the most overlap with new large-screen
smartphones.
Microsoft Corp. said on Tuesday it has decided not to move ahead
with a smaller-screen version of its Surface tablet, which had been
in development for many months. The company didn't say why, or
whether it might introduce a similar product at some point.
But analysts said Microsoft would have a hard time standing out
from a glut of tablets on the market. Microsoft also loses money on
its Surface device.
One fear for tablet makers is that the category winds up being
subsumed by others, like the way iPod music players gave ground to
smartphones that could also store digital music. Many analysts
think those fears are overblown, particularly given strength in
some markets for new low-end tablets selling for less than
$100.
Tablets produced by small companies--many based in China--are
using low prices to grab market share from brand-name offerings.
The least-expensive iPad Mini starts at $299 and the latest
versions of the 9.7-inch iPad start at $499. IDC estimates the
average selling price of all tablets running Google Inc.'s Android
operating system is now $228.
Wireless carriers have been aggressively pushing cheap Android
tablets. On Tuesday, Verizon Communications Inc. said it added 1.1
million tablets in the second quarter, thanks in part to promotions
like an Ellipsis 7 tablet at no cost to new subscribers.
If carriers are giving away tablets or steeply discounting,
customers are "not going to walk down the block to the Apple store
and spend $500," said John Hodulik, a UBS telecom analyst.
The iPad slump is a reversal of fortune for a product with one
of the most successful debuts of a consumer electronics product,
outpacing even the iPhone in the first few years. The tablet market
swelled as other players emulated the iPad.
PCs, which hit the market in sizable quantities the mid-1970s,
took roughly four decades to reach 200 million annual unit
shipments, IDC data shows. Tablets surpassed that mark with less
than four full years of sales, reaching 219 million units in 2013,
the firm estimates.
Amid the competing devices, however, Apple's iPad sales began to
slow about a year ago as bigger-screen phones became the norm and
less-expensive tablets flooded onto the market.
Apple may be adding to the pressure on devices like its 7.9-inch
iPad Mini, and to the choices for consumers to ponder. According to
people familiar with the matter, Apple is preparing to release two
new models of iPhone later this year with screens measuring
4.7-inches and 5.5-inches diagonally.
The Cupertino, Calif., company says it remains bullish on the
iPad. Apple Chief Executive Tim Cook this week cited high rates of
customer satisfaction and usage for Web browsing and
e-commerce.
He said there will be more innovation coming to the iPadthrough
new hardware, services and software. "This isn't something that
worries us," said Mr. Cook Tuesday.
Apple said it sees opportunities in pushing the iPad into the
corporate sector. In an effort to change that trend, Apple struck a
partnership with International Business Machines Corp. last week
under which the plan to create more than 100 apps, for industries
including retail, health care, banking, telecommunications, travel
and transportation. IBM also will sell iPads to its customers.
So far, however, few companies have replaced PCs with tablets as
standard-issue tools for all employees. And consumers aren't
finding them as essential to their daily routines as other
gadgets.
In an online survey, the firm Technalysis Research recently
asked about 1,000 U.S. respondents how they divide up their time
among devices for 22 tasks that include browsing the Web, updating
social media, sending emails and watching TV. Tablets were used
just 11% of the time, on average, compared with 37% for PCs and 26%
for smartphones, the firm found.
Asked by the firm about their buying intentions in the next 12
months, the same group put large smartphones as their most likely
purchases, with tablets ranking behind multiple products that
include TVs, notebook and desktop PCs.
"Those that are going to be interested in buying a tablet in the
U.S. by this point already have," said Jeff Orr with analysis firm
ABI Research. Consumers in China, India and South Korea aren't yet
buying enough new tablets to fill the gap. "There's a lot of weight
on those next countries to pick up the slack. It's probably
unrealistic."
Ryan Knutson, Jonathan Cheng and Don Clark contributed to this
article.
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