Forecasts & Hype vs. Actual Tablet Shipment

The initial forecasts for tablet PCs were mouthwateringly high. Shipments were expected to rise "by a factor of more than 12 from 2010," according to estimates provided in February by market researcher iSuppli Corp. The company said it expected global tablet sales to rise to 242.3 million units in 2015 from a mere 19.7 million units in 2010.

The giddy numbers sparked frenzied attention in the market and lured traditional PC OEMs as well as smartphone manufacturers. Today, the market is awash in tablet PCs from Apple Inc. (Nasdaq: AAPL), the current market leader, and other contenders for its crown, including Dell, HP, HTC, Motorola Mobility, Research in Motion, and Samsung. Companies like Nokia that were late to enter the fray have been pummeled in the marketplace, heavily criticized for not foretelling and preparing for the explosive growth of a new industry sector.

However, the initial forecasts are getting a trim. Although demand for tablets is still rising strongly, it's obvious the market is not expanding at the rate many had expected, a development that has some significance for the components vendors salivating over the sector and their OEM customers. In a report issued July 8, IDC said media tablet shipment in the first quarter tumbled 28 percent from the previous quarter. The decline was more than expected, even for the seasonally slow first quarter, and could be attributed to continued consumer concerns about the strength of the global economy, according to IDC.

It could also be a sign the product may not be keeping the traction it gained when Apple sparked interest in tablets with its first iPad. Let me speculate further by saying the development might also be linked to other factors, such as pricing (at $500 or more, tablets are still pricier than e-readers, for instance). Personally, I wanted a tablet PC last year but held off buying one until I had seen additional offerings; then, I decided my two laptops were serving me well enough and I didn't need an extra PC-like product. This opinion was reinforced during a recent trip, during which my laptop delivered service a handheld tablet would not have managed. I may still get a tablet, but the itch has subsided.

Could other consumers be similarly wary about spending so much money on a tablet device? It's possible, and component makers as well as OEMs need to take this into consideration. Certainly, this is still a huge market; even IDC raised its "forecast for 2011 to 53.5 million units from a previous projection of 50.4 million units," which could mean the lower first quarter shipment was a hiccup the research firm expects the industry to quickly overcome.

But here is my concern: The industry may be setting itself up for sales that may not materialize or come in substantially below forecast. Take the memory or DRAM market as an example. iSuppli estimates surging sales of tablets will light a fire under the DRAM market in 2011, pushing up shipment "by a factor of nine."

Mike Howard, an analyst at iSuppli, says: "Because of their soaring shipments, tablets are gaining increasing prominence in the DRAM market. The iPad, which has single-handedly dominated the tablet business since its introduction last year, will account for the bulk of the DRAM demand in the market in 2011 and the following years. However, competition to the iPad is seeping into the market, driving further DRAM demand."

Naturally, memory product-makers may be ramping up production for this expected increase in demand, but what if instead of "a factor of nine," actual demand comes in at a factor of five or six? A lot of products will sit on somebody's shelf. Similarly, In-Stat is projecting huge increase in demand for other silicon and non-silicon parts used in the production of tablet computers.

"Without question, tablets are driving the increases in silicon TAM (total available market) in portable entertainment devices," says Stephanie Ethier, an analyst at In-Stat. "Global sales for tablets are on the rise as a result of continued consumer demand, global expansion of tablets and a wider adoption of these devices beyond early adopters. In 2015, tablet and e-readers silicon will account for nearly 85 percent of all silicon content dominating the category."

Yummy, isn’t it? Let's just hope the forecast is as true as it sounds -- otherwise, somebody is going to rue pouring too many resources into this segment.